Anadarko (APC) settlement of Tronox liabilities last week represented a giant leap for that U.S. oil-exploration company's shares -- and for me, too. I recommended Anadarko on Feb. 13 and again on March 6, but this isn't a victory lap. It's a chance to learn how I play the energy and stock-picking game these days and where I find the most success ¿ and where you can find it too.
One or two trades usually determine how good a year I'll have. Looking back over the last several years since leaving the oil pits at the New York Mercantile Exchange, a pattern has become very clear: I am no longer as good a short-term trader as I was when I made my career as one. In the course of a year, I will have dozens of short-term trades, yes, but a pattern emerges that other mid-term ideas give me the most bang for the buck.
It was BP (BP) in 2010, playing the recovery trade from Deepwater Horizon. It was Tesoro (TSO) in 2012, figuring out the explosion in Brent crude and West Texas Intermediate spreads were going to lead to a bonanza for refiners. In 2013, it was Cimarex (XEC), finding a relatively unknown exploration-and-production company executing in the red-hot Permian.
There was unrecognized underlying value in all these cases, but they needed time and patience to develop. These are the ideas we want to find -- the ones that will yield the best profits.
Notice, also, that there is almost no speculative drive in these kinds of picks: BP or Anadarko weren't likely bankruptcies, Tesoro wasn't about to lose its gasoline concession and Cimarex had solid books, even if it fell flat in the Wolfcamp shale. There are speculative stocks that you can lose everything in -- go broke and take your investment dollar almost entirely away. Occasionally, I will also recommend and buy them for myself. But recognizing the difference in risk is imperative. The less speculative, value-oriented mid-term plays should get the majority of your available investment dollars. They're the ones that will make or break your trading year -- at least they have for me.
So what stocks am I looking at now? There are two, and they'll be hardly a surprise to those who follow me: Noble Energy (NBL), which is still waiting for the game-changing Levant basin natural gas to affect Mediterranean and Eastern Europe, and Devon Energy (DVN), a stock I finally enjoy owning but the company is still relatively unrecognized for its liquids turnaround in the last two years.
With Anadarko, I've already had a good year. But these two have the potential to make it a great one.
I want to know your picks, too. Send your mid-term energy value plays to Dan.Dicker@thestreet.com and I'll analyze them next week.
