An exchange-traded fund, or ETF, can be a great way to get exposure to an industry or sector that you think will outperform. That being said, most ETFs are filled with a lot of stocks, some of which aren’t the greatest investments and can affect your returns. Worse yet, there are several oil ETFs that attempt to simply track the price of the commodity but have poor track records, as few can accurately track the day-to-day movement of oil prices. That’s why I think investors are better off creating their own oil ETF.
That’s especially true if you want to profit alongside the explosive growth of American oil production. While it’s a bit more effort than simply buying an oil ETF, the potential reward is also much greater. In buying the following five stocks as part of a basket, you’ll make your own oil ETF that has the potential to outperform any other ETF on the market.
Bring on the Bakken
There are a number of great Bakken-focused companies to choose from for your oil ETF. However, if you’re looking for a gusher in terms of oil production growth, then Kodiak Oil & Gas Corp (USA) (NYSE:KOG) is the name you’ll want to know. For the past three years the company has grown its production by triple digits. Not only that, but Kodiak Oil & Gas Corp (USA) (NYSE:KOG) is well on its way to do it again this year, thanks to its plans to spend well over $1 billion in both organic and acquired growth opportunities. With more than 950 future drilling locations and a solid balance sheet, Kodiak Oil & Gas Corp (USA) (NYSE:KOG) will be producing American oil far into the foreseeable future.
Pioneering the Permian
The Permian Basin is like the gift that keeps on giving for oil producers. As the third largest oil producer in Texas, Pioneer Natural Resources (NYSE:PXD) is one of the many companies benefiting from this great oil play. The great thing about this company is that it has tremendous reserve potential thanks to new discoveries the play. If its estimates prove correct, the company’s total reserves of 1.1 billion barrels of oil equivalent could grow exponentially to more than 9 billion barrels of oil equivalent, thanks in part to the discovery of more oil in the Permian, which represents a potential increase of 7 billion barrels of oil equivalent reserves to Pioneer Natural Resources (NYSE:PXD). With the potential for 40,000 additional wells, Pioneer Natural Resources (NYSE:PXD) has a lot of room to grow as it produces oil-levered returns for our American-made oil ETF.
Don’t miss The Miss
While the play isn’t as oily as the Bakken or the Permian, the Mississippi Lime formation has the potential to produce a lot of growth for investors in SandRidge Energy Inc. (NYSE:SD). In fact, SandRidge Energy Inc. (NYSE:SD) is so excited about its position in The Miss that it sold all of its Permian Basin assets to reinvest that capital to grow its production here. Overall, SandRidge Energy Inc. (NYSE:SD) is planning to grow its oil production in the play by 64% this year and sees the potential for 11,000 future drilling locations. When you add it all up, SandRidge Energy Inc. (NYSE:SD) has a lot of upside, as well as an interesting catalyst, making it a great oil stock for your homemade ETF.