Is it the Market for Small Cap Oil?
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Feb
11
John Murphy
Is it the Market for Small Cap Oil?
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Big Oil stocks like BP PLC (NYSE: BP), Chevron (NYSE: CVX), and ExxonMobil (NYSE: XOM) are all suffering in the current market.  The future for the energy sector is certainly bullish, as detailed in many previous articles on this site.  But the best way to profit could be from small cap oil stocks such as Approach Resources (NASDAQ: AREX).

Over the last month of market action, both Chevron and ExxonMobil are down more than 9 percent (chart below).

BP PLC is off for that time period, too.  Big Oil stocks will, most likely, not be generating big growth in the future.  Correlation trading research, based on data from Macroaxis, tells the same story.  That is why small cap oil stocks like Approach Resources are so promising for growth in the future.

Approach Resources operates in the oil rich region of East Texas.

That is legendary country for oil and natural gas exploration and production.  It has provided the story lines for books, movies, and television shows.  For energy investing, there is no better place to be than the United States.  Investors from around the world are spending tens of billions of dollar for oil and natural gas assets in Texas and other areas.  An article in The Wall Street Journal reported that the Chinese alone  have spent over $40 billion on North American energy holdings.

The reasons?

The political stability and economic security that comes with energy companies like Approach Resources.  Big Oil entities, like Royal Dutch Shell (NYSE: RDS-B), the second largest energy firm in the world, are selling assets in Africa and the Middle East due to the tension in the area.  Big Oil has to operate in risky areas to produce the returns needed.  That is what makes small cap oil firms like Approach Resources so alluring.

Big Oil firms, though, are great for income investing.

According to Yahoo Finance and Macroaxis, the dividend yields are much higher than the average for a member of the Standard & Poor’s 500 Index of around 2 percent.  In addition, these companies have a history of increasing the amount of the dividend.  For long term investing, that is very appealing for the income component of a portfolio.

But for growth and value, small cap oil stocks like Approach Resources have much more to offer.

That is because it takes much, much less to move the share price.  Due to the efficiencies from its size, Approach Resources can focus on proven areas in Texas.  It does not have to circle the globe like BP, Chevron, and ExxonMobil in search of massive fields at great cost.  From that, the shareholders should profit much more from small cap oil stocks like Approach Resources.

 

 



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