Frontier Oil: Buy low, sell high
Today's Financial News - Posted March 27, 2009
Smart investors are looking beyond the current financial crisis. For a good shot at long-term profits, look towards the oil industry. Inflation, a lack of production growth, and a weaker dollar will create justification for rising prices. Frontier Oil (NYSE:FTO) is worth a look.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Oil is slowly regaining the attention of savvy investors. After dropping into profit-erasing territory just two months ago, the value of the world’s most valuable fuel source is slowly and quietly on the rise. Investors watching the action are getting in on some great trading opportunities.
Frontier Oil (NYSE:FTO), with a market cap of just under $1.5 billion, is considered a small fry in an industry dominated by behemoths. But that does not mean it does not offer a huge profit opportunity.
As inflationary fears rise, the nation’s economy returns to growth and the government does its best to bump up the price of any pollution-emitting fuel source, companies like Frontier will see their share prices grow.
When fuel prices were at their peak, shares of Frontier traded for a high of $33. Today, investors can get them for $14.20. Granted, we won’t be seeing $147 oil again anytime soon, but there are few doubts the current recession will someday end, leaving the world with a shortage in new crude production.
Preparing for what is next
With the credit markets tight and crude prices scraping the bottom of the barrel, oil producers are cutting back on their spending. Recent reports say the slowdown could cut more than eight million barrels of daily production out of future supplies. As the world’s demand grows and production remains tight, oil prices will rise.
Adding to the upward pressure is the uncertainty surrounding the value of the American dollar, the critical currency for all crude sales. As the value of the dollar falls, as most inflation-watchers predict, the higher the price we will pay for our crude. For companies that do not have to convert those dollars into any local currencies, the news is fantastic.
Over the last two weeks, two analysts have downgraded Frontier, based on its recent surge in price. Today’s cut has helped shave nearly 8% from the company’s share price. It could be the buying opportunity you need.
Now, if you are looking for a quick, in-and-out play, this is not for you. Significant appreciation could take years, depending on the speed of global economic recovery. But if you are looking for an invest-and-forget addition to your portfolio, start doing some due diligence. The oil markets could pay off.
The oil market’s cyclical nature has paid off many times for smart investors. It is an easy call. Buy low and sell high.
Do some homework and you can find plenty of other producers selling at discount prices.
Next Article: Perfect time to dive into the options market
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