Institutional Money Coming To Oil and GasUp until recently, oil and gas stocks (all of them) did poorly. A lot had to do with substantial liquidation of the sector by institutional money managers. The exodus of institutional money is particularly hard felt in the junior sector.
The reason why large caps oils are reaching new highs is that institutional money managers are now starting to invest in the oil and gas sector again. And these guys like to play it safe initially, by buying large caps. Plus these guys like to buy whats "moving" (and it is large caps that are moving: buying begets buying).
But as we've time and time again, small caps will follow the large caps. Once these guys have made big gains in the large caps they will want to invest in the small caps. This is not a "just because" argument, but because it already makes sense (undervalued, growing, big year-over-year gains in cash flow, etc.) - they just need the "momentum" to start.
I think the momentum has just started.
DFR may still be a bit "small" to attract much of this inflow right now (as the first move will be producers in the 3,000-5,000 BOEs/d range), but a little can make a significant difference in its share price. DFR has the potential to "explode" in 2007, given all of its high-impact prospects (and my guess of high success ratio this year, unlike last year). If DFR can push towards 2,000 BOEs/d (and I think it can by year-end), then a little help from institutions will take this company back to its old highs above $4.00/share.
Here's the article. Its about mining, but I want to only point out that Scotia is now shifting more towards oil and gas in the commodity sector.
ANGELA BARNES
00:00 EDT Wednesday, April 11, 2007
Uranium stocks may be at the top of many investors' buy list but not that of resource fund manager David Whetham. He is steering clear of them for now.
"Uranium stocks are so expensive . . . I think the uranium market is going to be great but I am not sure that uranium stocks are going to do great" because a lot of good news is already priced into the stocks, said the Scotia Resource Fund manager.
"I would rather buy, say, a copper stock that is at six times earnings than a uranium stock that is at 30 times earnings because even if they go up, I am not going to fall too far behind if I own the copper stock instead of the uranium stock because of the valuation difference," added the portfolio manager with Scotia Cassels Investment Counsel Ltd.
Mr. Whetham is more positive on copper stocks than some other metals such as nickel or zinc. The copper market is "pretty tight and the price is still pretty high," he said. Yet "copper stocks are pretty cheap because everybody likes nickel and zinc better," he added. If the copper market tightens further, and investors become more interested, then he expects copper stocks will probably produce superior returns.
But he is shifting away from materials and more into the energy sector because "materials have done so well and energy has sort of been flat for a year and a half."
Within the energy sector, he favours natural gas over oil on a nine- to 12-month basis. "I think the gas market is going to tighten up, especially because we are seeing drilling activity starting to fall off," he said.