3 stocks to play the oil surge

As the supply gets squeezed, these companies stand to benefit.

By TheStreet Staff Feb 23, 2011 11:45AM

Oil pump © Seth Joel/PhotographerBy Gregg Greenberg, TheStreet


Unrest in the Middle East is causing volatility in the price of oil, but fund managers say the main engine pushing energy shares higher remains the global economic recovery and a supply squeeze.


TheStreet searched for three powerful energy stocks with Stephen Davis, a senior associate portfolio manager for the Alpine Mutual Funds, and Mark Schultz, the fund manager of the MTB Mid-Cap Growth Fund (AMCRX).


1. Apache Corp. (APA)

Apache is an oil and gas exploration and production company operating all the way from the U.S. to Australia. The company's international locations help diversify geologic and geographic risk and expose it to larger reserve targets, which fuel production and reserve growth. Apache also has exploration interests in Tierra del Fuego, Chile.


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While Apache shares came under pressure recently from its Egyptian exposure, the company's more than 39 million acres across the globe bring ample growth opportunities, Davis says.


"Apache has a strong management team, terrific acquisitions of assets from their BP (BP) and Mariner transactions, and overly negative concern that the new Egypt leadership won't honor oil contracts," Davis says.


2. Occidental Petroleum (OXY)

Occidental Petroleum is an international oil and gas exploration and production company with operations in the U.S., the Middle East, North Africa and Latin America. OXY is the fourth-largest U.S. oil and gas company, based on its $81 billion market value. The company's wholly owned subsidiary, OxyChem, makes chlor-alkali products and vinyls.


Earlier this month, OXY increased its annual dividend 21% to an annual rate of $1.84 per share, compared with the previous annual rate of $1.52 per share. It has raised it every year since 2002, and Davis expects more increases ahead.

"Occidental has phenomenal management, and their recent operational problems, which are hurting production, should get worked through next year especially as they increase capital expenditures," Davis says.


3. Lufkin Industries (LUFK)

Oil and gas wells eventually lose pressure, so drillers need an artificial lift, or pump, to bring the resource to the surface. Lufkin, which has been in business for more than 100 years, has a dominant share in the pump-jack market. The company also services the equipment and has a power-transmission business.


There is competition from Weatherford (WFT) and China, Schultz says, but Luflkin is the industry standard.


"Lufkin is growing and looking to make inroads internationally, especially in Europe. And with more wells being drilled, the long-term secular growth drivers for Lufkin's business are in place," Schultz says.


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Feb 23, 2011 4:41PM

The oil companies don't care what they do to the average person as long as they make more money.  They should be ashamed of their selves. 

Feb 23, 2011 7:02PM
What do you mean it will start a recession?  We are in a recession right now.  Just look at the unemployment reports and figures.  What it will do is make what we have now worse.
Feb 23, 2011 10:05PM
Here's a fun fact:  Whenever the price of oil has risen at least 80% in a 12 month or less period there has been a major stock correction and in almost every case there has been a Recession.  booyah.
Feb 23, 2011 4:30PM

The $ 4.00 per gallon gas prices in 2008 helped lead us into the worst recession we have seen in years yet the oil companies' profits were enormous.  If the gas prices go back up, we'll be back in the recession again, and quickly.  I hope the oil companies don't profit once again on the backs of the people. 

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