I hope everyone had a wonderful holiday weekend!
I spent mine doing what most fathers do…
Watching their children open an incredible amount of toys while my wife cleared out the playroom of toys we purchased two years ago. My wife — who’s one of the most nostalgic people I know — got a digital frame with hundreds of pictures from previous Christmases and our recent trip to Disney World.
Me? I received a small hand tool that has various screwdrivers on it. I don’t know why people give me tools like flashlights and other trinkets. I own a fully functioning power tool set and enough rechargeable batteries to power this kingdom.
But I guess these little hand tools are better than a robe…
The more important gift is that West Texas Intermediate crude oil has now climbed back above $80, handing me a win after I started buying stocks when crude hit about $70.
It’s not too late to get in on the energy train. If you’ve never invested in oil before — or you need a refresher — let’s revisit four key ways to do so.
How to Invest in Oil in 2023
As 2022 proved, oil prices can be highly volatile.
We had major geopolitical events like Russia’s invasion of Ukraine and Covid lockdowns in China to influence oil prices. Then there were the global economic conditions linked to rising interest rates and recessionary concerns impacting energy supply and demand.
And we saw dramatic shifts in supply and demand due to OPEC’s influence on production and rising capital costs due to environmental, social and governance provisions.
However, I believe oil is heading higher due to rising forward demand from China’s lockdown conclusions, the need for OPEC to reduce supply and the rising costs of capital among producers around the globe.
My price target for WTI crude is $90 per barrel by the end of 2023, with a total upside of around $110 per barrel.
That’s why I’m considering the following investments:
- Stocks of Energy Companies: The best way to capitalize on rising oil prices is to purchase publicly traded energy companies — think oil and gas producers, refiners and storage operators. Because these companies own physical crude, which is typically included on their balance sheets, they can sell their products at a higher price and hopefully achieve higher profitability. One of my favorites for the long term is Devon Energy Corp. (NYSE: DVN), but I have other ideas…
- Exchange-Traded Funds That Hold Energy Stocks: There’s an opportunity to purchase ETFs that hold various energy stocks from the sector. These funds typically diversify according to a thesis. Some focus on retailers or refineries while others will own the entire supply chain. You benefit from the diversification, but you’ll have to pay an expense ratio to the fund holder. This strategy is more suited for passive investors who don’t pay much attention and want to focus on long-term diversification.
- ETFs That Own Oil Futures: Other retail ETFs like the United States Brent Oil Fund LP (NYSE: BNO) or the United States Oil Fund LP (NYSE: USO) trade futures contracts. As I’ve noted, there are typically six or more paper contracts for every one barrel of oil, meaning there is money in the speculation itself. I tend to avoid ETFs with options contracts during periods of backwardation. However, this has become a popular speculative asset class in recent years. Be sure to read a prospectus before investing.
- Oil-Linked Assets With Unique Tax Benefits: Investors don’t have to limit themselves to individual companies or ETFs. We can also look for companies linked to the energy space that offer different tax benefits. These assets include real estate in oil-producing regions, storage facilities or alternative investments that control assets that benefit from oil production. This is one of my favorite ways to play energy because the right assets can generate incredible returns in the form of price appreciation and dividends. And there’s no better place than master limited partnerships…
Why MLPs Are Strong Buys in 2023…
I believe 2023 presents the best opportunity to invest in one area of the energy supply chain…
It’s a part called the “midstream.” This part of the supply chain connects the upstream producers in oil and gas to the downstream companies, which purchase oil for refining and finished products. The best part of the midstream is the wealth of master limited partnerships that offer a combination of upside and dividends to maximize returns for investors.
MLPs provide distinct tax advantages by bypassing the corporate tax structure. Since these companies generate 90% of their revenue from their underlying assets — pipelines and storage in most cases — they can provide profits directly to investors in the form of dividends.
By bypassing the corporate tax level, MLPs can offer high single- and even double-digit yields on top of the upside from energy prices.
Think of them as a toll road connecting producers to end users, collecting money regardless of the oil price on a specific day. Investors looking to capitalize on this ideal spot of the oil supply chain should look to Tactical Wealth Investor as a source of great MLPs and stocks with a unique combination of growth, value and dividend upside.
In fact, the portfolio includes one fund that trades at a 16% discount to its net asset value, and pays a higher dividend than nearly every MLP in the fund. This is a secret way to make incredible wealth in the years ahead. And it provides you with a double-digit upside at a time when the markets remain highly volatile
Join Tactical Wealth Investor today, and take advantage of this incredible sweet spot in energy.
To your wealth,
P.S. And don’t forget to let me know if you have any feedback, questions about today’s issue or anything else. Just email us at email@example.com.
*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.