Street Wise: Energy crisis is investible

The bad news is that California’s could be a mild harbinger of things to come, particularly in the heavily populated northeastern United States, where energy consumption will increase dramatically this summer.

Some economic theories lay out gloomy domino-effect scenarios that show the perils of California’s decelerating $1.3 billion economy, the eighth-largest in the world, leading a slowdown in national gross domestic product growth.

The good news is that there are opportunities to hedge against the rising energy costs by filtering through companies in various states of production and exploration.

Borden Putnam, an analyst and principal at RS Investment Management in San Francisco, says that all scenarios suggest that now is a good time to invest in natural gas. No OPEC-like cartel is controlling it, it is difficult to transport over long distances, and it is the most obvious power source for future generation facilities.

“What’s bad for the consumer can be great for the investor,” Mr. Putnam says. “And California is only one real obvious part of the U.S. .”

RS has been loading up on energy stocks for nearly four years as a value play, and over the past two quarters the weightings increased to 69% of the portfolio of the RS Global Natural Resources Fund.

Specific plays in the sector right now include Apache Corp. and Anadarko Petroleum Corp., both highly regarded Houston companies with ample exposure to the natural gas market.

Apache, which has seen its stock double over the last 12 months to trade at about $60, earned $5.73 a share in 2000, up from $1.72 a year earlier.

A company with a reputation for making smart acquisitions, Apache is partnering with Shell Corp. as a “white knight” bidder for the energy division of Fletcher Challenge Ltd.

Anadarko’s stock has moved almost in tandem with Apache’s over the last 12 months, up more than 100% and trading at about $63.

Also participating in the industry’s consolidation, Anadarko is bidding on Canada’s Berkley Petroleum Corp., and it is still absorbing last year’s acquisition of Union Pacific Resources of Fort Worth, Texas.

Credit Suisse First Boston reports that the addition of Berkley would increase Anadarko’s 2001 per-share earnings to roughly $4.80, from an estimated $4.64. However, the report states, “We believe the financial impact is not as important as the positioning.”

Credit Suisse calls Anadarko “the best-positioned company” among the large-cap energy exploration and production stocks.

Both Apache and Anadarko have consensus “strong buy” ratings from industry analysts.

With price-to-earnings ratios below 11, they are still value stocks, yet their financials say they are growth stocks.

“These companies are at historic highs,” says Mr. Putnam. “They’re paying down their debt, and they’re making more money then they’ve ever made.”

Questions, observations, stock tips? E-mail Jeff Benjamin at [email protected].