Monday, June 02, 2008

Avoiding Oil-Related Stocks

Today, we released the June issue of the Forbes Growth Investor. The 50 stocks on our recommended list are up 2.11% year-to-date. In comparison, all the major indexes are down more than 4% during the same period. We have been seeing quite a bit of strength in the technology sector. For example, (SOHU) surged 83% during the three months it spent on our recommended list.

Our Special Situation Survey investment newsletter takes a more concentrated approach. We typically have only about 15 stocks on the recommended list in this newsletter. One of our best picks this year was Trinity Industries. The stocks in this newsletter are up 26% year-to-date, making it one of the best-performing investment newsletters so far this year as well as over the past five years.

Interestingly, neither newsletter has benefited from the surge in oil prices. There are no oil-related stocks on the recommended list of the Forbes Growth Investor. Currently, there is only one in the Special Situation Survey, but it hasn’t done particularly well. In general, energy is an area I have been avoiding. In fact, as far as oil goes, I am in the bubble camp. Supply and demand factors certainly explain a good part of the rise in crude oil prices, but I believe Federal Reserve policies that have weakened the dollar also carry some blame. U.S. demand for gasoline is actually falling. Gasoline is subsidized in many other countries, but their governments are finding it increasingly difficult to continue this practice. Oil prices could plunge as subsidies are lifted and as the dollar strengthens.