Gas or Oil stocks. Which is better value or which is better bet?

An interesting piece on the love of oil stocks and the opposite for companies that have explore and produce natural gas.  Click on the picture to go to the article:

Although I find this an interesting analysis, it just doesn’t factor in the reality that stocks have only an indirect relationship to the underlying commodity. The oil/gas (boe) ratio even less. Stock prices are supply and demand driven – for the stocks. With oil and $100 investor psychology (typical in bubbles) embeds the expectation of continued oil pricing at or above this level. For natural gas, it’s the same. The difference is there’s been much buying interest in oil stocks based on irrational expectations (analysis becomes redundant) and none in the gas oriented ones. Gas plays are indeed cheap – simply based on the also irrational expectation that natural gas prices will decline forever, or at best stay put. The bet (institutions are smart and early, swapping into gas stocks gradually) on gas is a good one – worst case is “in” the price, and any good news (mighty cold weather) that pops up will rocket the stocks higher.  In a nutshell, when I see a chart like the one below, I find it hard to ‘expect’ the trend to just keep going off (the bottom) of the chart and also expect to make money betting on it.  There’s no fundamental or statistical evidence to base that expectation on (see previous postings on price of oil). 

Invest to Live; Live to Ride

About Mal Spooner

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He recently authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.
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