Should You Be Investing In Oil

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Thursday, 24 July 2008

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By:Mika Hamilton

Investing in oil and gas begins, like all other investments, with sound research. Establishing which oil and gas stocks should be invested in is the first step. Many people believe that oil and gas stock offer a higher yield on investments places on oil sands and Canadian oil. However, there are several important influencing factors which should first be considered. If you feel overwhelmed then you might want to seek out the help of a financial advisor which will be able to help you build a successful oil stock portfolio.

The first of these factors is if the oil stock is over or under valued. Much of the stock market rhetoric is actually marketing hype and it is important for the smart investor to be able to separate fact from fiction. To know what the actual value of a stock is you need to check the oil stock price earning ratio. If the earning ratio is above 20 then that is a good indicator that the stock has value and you should further research.

Next determine if that oil stock price ration is high because of an growth due to acquiring more land, or increasing the size of their drilling operation. The future of the company is just as important at the current state of the oil company.

It is also to know the difference between a trust unit and a common share. A number of oil and gas stocks are converted from common shares to trust units. The reason this is done is because when oil stocks become trust units they defer tax to the unit holders.

The distribution of trust units usually takes a great deal of money and can decrease the amount of growth in a particular oil stock. If you are looking for an oil stock with a steady profit then choose an oil stock which is in trust units. However, if you have an oil stock in your portfolio which has an increase in growth potential then you need to stay away from oils stocks with trust units.

This is because public company shares do not pay out large dividends to shareholders and usually reinvest into their own capital program. These program include buying more land, mineral rights, and increased drilling. These choices generate money for the common share holder rather then the unit holders.

Another important issue to consider is whether you want to deal with natural gas or oil. Make sure you understand what percent of your oil and gas investments are natural gas stocks. Currently the prices of natural gas stocks is high and it is a bad time to buy natural gas securities. Due to the high price of these stocks it may be a good time to consider selling some of your natural gas stocks. Be sure to check with your financial advisor and the current market before selling any of your stocks.

Make sure you consider all the above points when starting to invest in oil and gas stocks. Black gold can be an extremely profitable investments but only through aggressive education and research can you find financial security.

Article Source: http://www.dailynewarticles.com

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