Investing is a stressful activity. Daily price changes and quarterly earnings give enough information and activity to keep you glued to your computer all day. The energy markets are constantly filled with surprises and the latest doomsday story.
The chart below shows two different measures of volatility; one for oil, and one for the S&P 500. There have been huge spikes in volatility, yet the broad stock market has kept on growing. Over the past five years, the S&P 500 total return index is up 27.09%. The world needs a consistent supply of energy. Focusing on strong and secure energy firms gives investors a steady flow of profits without the stress of the news cycle.
Where to Invest
If you want to invest for the long haul, then you need a company that thinks the same way. Exxon Mobil Corporation (NYSE:XOM) is one of the most powerful integrated oil companies — and with good reason. The company has a number of upstream projects, including the Kearl project in Canada’s oil sands. Replacing reserves is not easy for companies of this size, and in 2012, overall upstream volumes did decrease by 5.9% relative to 2011. At the same time, downstream earnings helped to even things out and improved margins increased earnings by $2.6 billion.
A good mix of downstream and upstream assets is critical to maintain earnings in the midst of volatile commodity prices. Exxon Mobil Corporation (NYSE:XOM)’s diversity helps to allow you, the investor, to sleep sounder. The company has almost no debt, with a total debt-to-equity ratio of 0.07. Its yield of 2.5% isn’t very large, but with a 22% payout ratio, the company is trying to be prudent and save enough for capital investment. ExxonMobil is a solid company with decades of experience. For long-term investors, it is a great firm to consider buying.
Suncor Energy Inc. (USA) (NYSE:SU) is a Canadian firm that is heavily involved in the oil sands. Currently the fourth stage of their Firebag project in the oil sands is being developed, which should provide some of the volume to boost total upstream production from Suncor’s current 549,000 barrels of oil equivalent per day to the 570,000 BOE/D – 620,000 BOE/D goal in 2013. Suncor’s also involved with Exxon’s Hebron project off the coast of Newfoundland. The majority of firms in the oilsands are forced to take steep discounts because of the lack of transportation to get heavy oil to refineries. Suncor’s company’s mix of upstream and downstream assets help to get good prices for their heavy oil.
The firm has a healthy debt load with a total debt to equity ratio of .26. Their profit margin of 12.3% and gross margin of 53.4% give the firm room to breathe. Suncor isn’t as famous as Exxon, though it is still a good company with diversified operations.