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Stock market investors sometimes focus on a particular industry, such as energy. For those investors who are interested in investing in oil and gas stocks, there are certain expectations that should be understood. Oil and gas investors often must be patient, because stocks in this industry tend to be volatile — that is, they exhibit dramatic price swings based on the supply and demand of these resources. Ideally, this group of investors should hunt for opportunities when oil and gas prices are pulling back but show signs of future recovery. This search might require the guidance of an investment professional.
Oil and gas investors should also keep pace with the current regulating of oil and gas production in the region in which they plan to invest. For instance, a country might place a hold on oil and gas drilling for some reason, such as impending danger of an oil spill. In this scenario, an oil services company that drills for the natural resource will probably see its stock price decline because of the interrupted profits. A lull in drilling activity could present an opportunity for investors to enter into this sector at low prices or, for short-term investors who are looking to reap quick profits, it might be a signal to remain sidelined for the time being.
There are different ways for oil and gas investors to allocate money to energy. Stock picking represents one way, and through this course, the investor should research individual stocks at length. The main areas of interest should be price history, profitability and revenue growth over the past three months, six months and one year’s time at the very least.
Another way is via investing in an oil and gas mutual fund. There are mutual funds dedicated exclusively to the energy industry. These funds might focus on a particular segment of energy, such as oil and gas drilling or solely on oil and gas conglomerate companies. Oil and gas investors who decide to invest with a mutual fund will gain exposure to multiple stocks in the industry without having to gain expertise on every individual holding but rather the mutual fund firm as a whole.
One thing for oil and gas investors to keep in mind is that the price of crude oil and natural gas weighs heavily on the direction of trading in many energy stocks. As a result, when energy prices are peaking, this typically bodes well for oil and gas stocks. Conversely, when these securities are going through a downturn, it reflects lesser demand, and as a result, oil and gas stock prices tend to decline during this period.
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