The best way for a beginner to build an oil portfolio is to put together a basket of oil stocks.
These stocks should cover all different investing styles, including value, growth,and, of course, income.
With that in mind, here are four picks for a beginners oil portfolio.
Blue chip backbone
Every portfolio needs a large-cap dividend champion, to provide a steady income and backbone to build the rest of the portfolio around. For oil investors,BP(LSE: BP) could be the best pick for this position.
While BP is still trying to sort out legacy issues from the Gulf of Mexico disaster, the company hasprioritisedshareholder returns. Indeed, over the past five years the company has returned a staggering $33.3bn to investors through both dividends and buybacks thats almost a third of BPs current market value.
BPs dividend yield currently stands at 5.8% and City analysts expect the payout to grow at a rate of around 5% per annum for the next few years.
BP currently trades at a forward P/E of 17.5, which may seem expensive, but the companys lofty dividend yield more than makes up for the rich valuation.
High-risk, high reward
BowLeven(LSE: BLVN) is a great portfolio partner for BP.
While BP is a slow-and-steady income play, BowLeven has the potential to be a multi-bagger from current levels.
The company is currently sitting on around 30p a share in cash, along withoil reserves amounting to 58m barrels of oil equivalent. BowLevens total net asset value stands at around 75p per share, a full 150% above present levels.
At the beginning of thismonth,the company confirmed that it had started drilling operations at itsZingana exploration wellon theBomonopermit, onshore Cameroon.
Like all early stage oil and gas companies, Bowleven is a risky bet, although the risk-reward profile looks attractive.
As a mid-cap international oil producer, Genel Energy(LSE: GENL) is a reduced risk play on the oil sector with the potential for tremendous growth.
Just like BowLeven, Genel has a cash-rich balance sheet, with a cash balance of $489m at year-end 2014. The companys production hit 69,400 barrels of oil per day during 2014, up from 44,000bopdduring 2013. Production is expected to grow further tobetween 90,000 and 100,000bopdthis year.
However, Genels future depends on the price of oil. Analysts currently estimate that Genels pre-tax profit will hit $55m this year, before jumping 79% during 2016. This is based on the assumption that oil prices will push steadily higher to around $80 per barrel by 2016.
If the price of oil exceeds this forecast, then clearly, Genels earnings growth will accelerate.
Based on current figures the company is trading at a forward P/E of 24.4, falling to 14.9 for 2016s estimated earnings.
Weir Group(LSE: WEIR) is currently suffering from adrop in orders at its oil and gas division. For the long-term holders, however, the company could be a great play on the oil services sector.
Weir has beenhit by a slowdown in North American oilfield activity as crude oil prices remain depressed. To counter falling orders the company has slashed costs, but according to forecasts, these cost cuts wont do much to offset declining sales. Specifically, Weirs earnings are set to fall 30% this year.
Still, growth is expected to return during 2016.
Analysts havepenciledin earnings per share growth of 12% for 2016. Double-digit growth is also expected for 2017.
And based on current forecasts Weir is trading at a forward P/E of 19.4 and 2016 P/E of 17.3. Also, Weir supports a dividend yield of 2.3%, which is covered twice by earnings per share.
Buy and forget
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