Unique Investment Opportunity Born in America

Something just occurred that has not happened since 1997: the U.S. produced more oil domestically than we imported. Just a few years ago, people would’ve viewed that statement as simply a fantasy. 

This is a perfect example of what happens when business owners see an investment opportunity that will help create corporate earnings. The escalating price of oil and the growing dependence on imports led to the creation of new technologies, which has now resulted in a massive increase in oil production. 

The U.S. has imported on average 60% more crude oil than domestic production over the past 16 years. Because of the development of new technologies, shale-oil production in areas such as North Dakota has exploded. (Source: U.S. Energy Information Administration web site, June 5, 2013, accessed June 7, 2013.) 

This has created a massive investment opportunity to generate corporate earnings for a very long period of time. The level of oil and natural gas that the U.S. has available is immense.

However, even though there is an investment opportunity to generate corporate earnings, one must be careful in choosing which stocks to invest in. This is because the push into this sector has led many firms to expand production, as they, too, sense an investment opportunity to increase their own corporate earnings. 

This has led to a massive increase of supply, which is set to continue. I think that simply buying any company in this sector is not the right approach. While we are all aware of the significant investment opportunity, not all companies will share in the growth for their corporate earnings evenly.

Obviously, each company’s merits need to be investigated, but I would look at firms that can provide a variety of services to multiple companies in this sector. The investment opportunity is not short-lived, and there is plenty of time to generate corporate earnings over many years. 

One company that I have liked in this sector for some time is Halliburton Company (NYSE/HAL). Not only did the company increase its quarterly dividend to $0.125 per share, or an approximately two-percent dividend yield annualized, the firm is focused on improving margins in North America. 

The chart for Halliburton is featured below:

Chart courtesy of www.StockCharts.com 

I think Halliburton has an excellent opportunity to increase corporate earnings over the next decade, as the investment opportunity in America’s oil boom continues to flow. The stock is not overly expensive, with a forward price-to-earnings ratio of just over 10, and the expertise and knowledge that Halliburton has in this field is very extensive and hard to replicate. 

As is quite evident from the above chart, it’s currently an upward bull market. As long as the stock remains above its 200-day moving average and the lower support line, this bull market will remain intact. More importantly for the long-term investor, corporate earnings need to continue growing, especially for the North American segment. 

The investment opportunity for oil and gas firms within America is huge over the next decade, and I believe firms that can help develop this field can generate strong corporate earnings growth with a steady dividend yield.

 by Sasha Cekerevac, BA

This article Unique Investment Opportunity Born in America was originally published at Investment Contrarians