Experts agree: Gas prices are likely to reach $5 per gallon by the end of the year, and I, for one, want to find a way to lessen your pain and help you come out on top by investing in these five oil and oil-related securities:
Total SA (TOT), Exxon Mobil (XOM), CSX Corp. (CSX), Norfolk Southern (NSC) and PowerShares DB Energy Fund (DBE).
I’ll start with the dark horse in the market: railroads. Railroads are the only alternative to transcontinental trucking and a method of transportation that can move 484 miles on a single gallon of fuel, as their trade association likes to say. As a point of comparison, the American Transport Research Institute noted that trucking companies now spend more on fuel than they do on driver salaries. In fact, fuel and oil costs are 31% of revenues, the largest of all expenses to move freight. So take a look at CSX and Norfolk Southern. I predict more business and better pricing for them.
Among the oil companies, I like the so-called integrateds. They’re called that because they control everything from the wells they drill to the prices they can charge at the pump. Among these, we are buying Exxon Mobil and Total SA. One is a household name, and the other is not, which is one reason I like it. Total SA is a French company operating in 130 companies around the world. And with things being what they are in Europe, Total SA represents a way to capitalize on depressed European equities while tapping into world oil markets, whose outlook is more sanguine than the eurozone.
And finally, for those hedging against risk inherent in individual equities, there is the PowerShares DB Energy Fund, which capitalizes on price changes on commodities through futures contracts.
For GMG Defensive Beta Fund disclosures, click here. Oliver Pursche is co-portfolio manager of GMG Defensive Beta Fund. Shares mentioned in this post that are held by the GMG Defensive Beta Fund are identified.