E-Trade / Investing in Oil Companies

[TwinsBrewersWorldSeries]

I know that some might this this "evil", but i've been considering buying some BP, Mobil, or Exxon Stock. Not a lot, but maybe a few thousand dollars worth to offset the cost of high gasoline for me (the commute to work makes this neccesary). I know that if I invest say $5K at the stock market average (8%), that equates to about $400/year in return. I spend probably $250 on gas/month just commuting to work, so I figure that $400 of $3,000 annually cuts my cost by 7.5%

 

But then it occured to me that the money I invested, i would have invest anyways, so to "save" money on that gas, I really have to earn ABOVE the 8% expected return in the market. I figured the only stock that might be able to accomplish this was oil, and that I should "buy low- say mid winter when prices are low, and sell mid summer/late spring when prices are high, though I also figure that if making an obscene profit on gas were this easy, EVERYONE would be doing it.

 

Anyways, anyone have experience with E-Trade, or any other small time investing (withou it being used for retirement purposes), and if so, is it easy enough to buy BP, Exoon, or Mobil stock, or is that limited to the "big boys"

 

Thanks

TBWS

[JimH5]

I've used TD Waterhouse and Fidelity in the past, and stock trading is super easy. You don't need to be super rich to trade with them--or with several other brokerages.

And whiile you may think of oil companies when you think about how much you're spending on gas, the decision on how much and where to put your money should be made without regard to your driving habits. I subscribe to Smart Money, and Money magazines. I am very fond of Smart Money (not a big fan of the way Money uses "typical" people in framing their stories/advice). I also will use Morningstar reports to make buy/sell decisions.

Good Luck!

[fondybrewfan]

I am really not so sure that oil stocks correlate with the price of oil. I may be wrong but I would do a lot of research before you make a decision. Just because oil prices are at all time highs doesnt mean the oil company stocks will follo suit. Besides just IMO the oil industry is due for a major correction. OIl just can not continue to far outpace inflation for an extended period of time. Also as oil prices are high, I would be fearful of politicians putting tighter restriction and/or high taxes on these company's to "show" america that they are against "Big Oil". Especially with the election coming up next year a lot of things could happen. It would be wise to diversify your portfolio. Never a good idea to put your eggs in one basket. If you are looking to beat the market their are plenty of mutual funds who are blowing away the market this year and have a very good history.

[Fatter than Joey]

Generally speaking gas stations make their money/are the most profitable when the prices drop. (Speaking strictly to gas)

 

If you think about it -- if gas is 2$ per gallon today, and tomorrow it goes up to $2.10 -- there is a negative cashflow, as the gas station has to spend more money to replace its inventory, however when gas is 2$ then falls to $1.90 -- they are replacing their inventory with cheaper inventory, generating a positive cashflow.

 

I would assume buying Mobil stock would mean buying a piece of their retail operations.

 

I would expect as well -- lower gas prices means that more people are buying more soda where they have a higher profit margin as well.

[Patrick425]

Sorry, not trying to completely change the subject, but Jim..everytime I see your avatar of Kenesaw Mountain Landis (that's who that is, right?), I just wonder, did that guy ever smile? Did he ever experience any joy in his life at all? Sorry, maybe I should have started a seperate subject regarding people's avatars.

 

Carry on.

[bbrauch2000]

Fondy is right on this one. When dealing with commodity prices increasing or decreasing, historically, there is very little direct correlation between the price of the stock and the price of the commodity. While it may not be a bad investment to look into some of those companies, you may want to adjust your reasoning before going into it.

[And That]

I've used E-Trade and Ameritrade (which has sinced merged with TD Waterhouse), and while my experience with Ameritrade was better, go for whomever will give you the best value. The only two publications I use for investing are Investor's Business Daily and Morningstar. Morningstar is my most indispensable tool. I used to be a big Motley Fool guy, staying away from mutual funds like the plague, but that's just bad advice for most people.

 

One of the many rules of thumb I've learned about investing is that before you buy into something, think about whether it is something you can see not only being profitable now, but continually and exceedingly profitable in 5, 10, 20 years. Also, is the investment something which you think will change the way people do things or is/will become and continue to be a dominant force in the marketplace?

 

Oil companies, and the industry as a whole, are interesting beasts. As long as there is oil left to be had, there will undoubtedly be a demand for it. While it isn't hard to see the major industrialized nations of North America and Europe moving away from their huge oil imports in the next 10-20 years due to increasingly chic environmentally friendly choices for power, emerging markets and most Asian countries will continue to express a significant need for oil until some other dominant energy technology emerges. So while we may be getting off of oil soon, much of the world will not be, and oil companies will continue to make profits. And even if the entire world went off of gas tomorrow, there's still everything else you can do with petroleum. Basically, IMO, oil companies are sound investments over the near and long-term, though not something I would want at the center of my portfolio.

 

The only oil company stock I have owned has been indirect ownership through mutual funds. I'd have to look it up to be sure, but one of the stocks I own most through my funds is Exxon. Obviously, if really smart money managers buy it, it must be worth something. The only way I'm comfortable with purchasing oil stock is through mutual funds, not due so much to the volatility of oil as a commodity, but due to volatility of the energy market as a whole. I have owned oil/energy exploration company stock before, but have since discontinued that in order to turn my portfolio more in line with my personal moral obligation to the environment.

 

Just like in any investment, you have to make sure you're comfortable with it and in it for the right reasons. If you do your research and find an oil company you think is doing good things and will start to control more of the very mature oil market, go for it.

[JimH5]

Yes Patrick, that is indeed The Judge.

 

And I don't believe I've ever seen a picture or newsreel of him with anything but a menacing scowl on his face.

 

Still, he was a flesh and blood human, so there had to have been something that would have made him laugh.

 

Maybe when he dined on filet of Cicotte with Gandil chutney. . .

[ajgodson]

While a nifty idea, investing standalone in any stock or group of stocks is not going to be a good idea in the long run. I'm sure you've heard it a thousand times, but a diversified portfolio is the only way to win consistently in the game. The system is set up that way and that's really the only way to consistently and get the appropriate risk/return tradeoff win. As far as oil goes, the link between price of the stock and price of the oil isn't always there. With government probably getting involved in energy funding and legistlation, it might be a risky time to invest long term in big oil. Just my thoughts.

[Minigoon]

ExxonMobil and ChevronTexaco are what are called no load stocks. An investor can directly purchase shares of stock from the company without having to go through a broker. You will need to pay a fee to the company. You can read about it at their websites

ExxonMobil: https://www-us.computershare.com/investor/default.asp?bhjs=1&fla=1&landing=y&issuerid=scusxom&showinvestorcontact=y&ilpt=another

ChevronTexaco: https://vault.melloninvestor.com/jsp/enroll/BankCompany.jsp?keySymbol=CVX

Marathon Oil: http://www.marathon.com/Investor_Center/Shareholder_Services/Dividend_ReinvestmentDirect_Stock_Purchase_Plan/

Hope this helps

[dadofandrew]

Sharebuilder also works well, and is cheap. It's either $4 (on Tuesdays) or $10 (right away).

 

FYI, gas stations do make more when the price is going up, because they raise their prices quicker than their wholesale price.

 

Exxon is a buy no matter what, it's simply an astoundingly well run company. I'd probably buy a company that makes drilling supplies or transports oil rather than an oil stock, because I do not see a downside in oil exploration and shipping anytime soon.

[Schlitz001]

I'm currently working on an oil rig as I type this. If you want to make money on oil/gas related stocks you need to invest in smaller exploration, production and service companies related to the field. The only energy stocks I invest in is the alternative energy stocks like solar, wind, water, etc. so my knowledge of oil/gas stocks is limited, but I do know a lot about some of these companies from talking to their personel. Here are some companies that I have personally seen grow as I have worked out in the field; Schlumberger, Haliburton, Totco, Epoch, Pason, Weatherford, Pathfinder (love these guys), Berry Petroleum, Mindham, Energen (Operating Company I'm currently working with and they are punching 200+ holes down here in NM in the next year, all producing), Nabors, Aztec, Lariat, Patterson, Clayton Williams, Wind River Resources, Swaco, Smith, H&P just to name a few.

Like I said, I don't know how any of these stocks are performing, I'm just throwing names out. If I have more time, and you are interested, I can go into detail on what companies have leases in what areas.

EDIT: I should add that I use Scottrade and think it's the best. Market orders and $7 a pop. I'll also say that the reasons I won't invest in oil/gas is because I work within the sector. I see the slowdown already starting. All of the worlds reserves have been discovered and are rapidly being depleted. We are currently in a boom, but I see the bubble popping sooner than later. Beware of longing some of these stocks.

[Fatter than Joey]

FYI, gas stations do make more when the price is going up, because they raise their prices quicker than their wholesale price.

 

If you are saying that gas stations make more profit when wholesale gas prices are on the rise versus when wholesale prices are on the decline -- that is false.

 

Generally speaking -- besides replacing gas inventory at a cheaper rate -- the gas retailer has a window when the consumer is used to a price, that if the wholesale

price drops, the retailer can keep the retail price at the same level while his wholesale price drops.

 

When the price drops, the consumer buys more gas, enabling the retailer to buy at a larger volume, as gas prices fall, less people use cards to pay for gas, saving the retailer 2.5%. If people are spending less on gas, they are more inclined to purchase fountain sodas and hotdogs, where the real profit is. etc.... Retail gas stations are more profitable on the downside of a wholesale gas price cycle.

 

Also in the case of when gas prices spike, there are laws (in Wisc) that prohibit stations from changing their prices twice in the same day. -- This would never be a concern if prices were falling sharply, but in the case of spikes, it can cost a retailer to sell inventory with less of a margin than they normally would.

 

At any rate -- this is a good illustration on how, profitability (with regard to stocks) is not always tied into prices rising.

[dadofandrew]

FTJ, I was just going off the quarterly statements of several companies back when I tracked them. They all said their higher profits were related to higher gasoline margins when prices were high in early summer. As for "people buy more gas", I buy what I need, and most everyone does. I suppose some might choose to drive less for fun, but as of yet, demand has barely been affected by price.

[RockCoCougars]

If you want to live dangerously, you could invest in some oil futures (I think they even have futures on unleaded gas). Not sure if you have to be a big player to get in the futures game or not though.

[Fatter than Joey]

They all said their higher profits were related to higher gasoline margins when prices were high in early summer.

 

I think we are getting confused over high/low and rising/falling. Gas can be high and falling in price or be low and raising.

 

Generally in the summer you see a couple of spikes -- and when the wholesale price starts dipping, retailers will leave the price high as consumers are used to that price. Regardless of whether prices are high/low -- Gas retailers make their best profit when wholesale prices start dropping.

 

The other aspect of high gas prices is that consumers will generally use their credit card more often when prices are high. Nowadays about 60% of gas purchases are done with a card -- which means the retailer has to pay 2.5-3% of that cost to the bank -- which of course eats into their margin.

 

The other variables would be the size of the stations tanks and money reserve. If a station can purchase larger amounts of inventory they can hedge their bets when prices are on the rise.