The Energy Sector Is Hot

InterOil Soars 60% in Two Months; Why Baytex Will Be Next

April 22, 2009

As my 5 Hot Stocks in Ice-Cold Sectors proves, you can't always judge a stock based on the sector or region it does business. Such is the case with one of the hottest stocks on Wall Street right now, my #1 energy pick, InterOil (IOC). This is an Australian-based company that's developing an energy business in, of all places, Papua New Guinea.

Don't laugh: InterOil is quickly becoming the Susan Boyle of Wall Street, the overnight singing sensation from Britain's Got Talent. Sure, the stock looks a little dowdy right now, but it's about to become a lot more famous. Consider that in just six weeks since I first recommend IOC to my Emerging Growth newsletter subscribers, the stock is up an astounding 64%!

The company's exploration program could become a major source of earnings. The refining business is already doing well. In addition to operating a 32,500 barrel-per-day refinery and retail assets, InterOil has begun an extensive exploration program on its eight million-acre site. The company is gearing up for a big future. It recently got its listing on the New York Stock Exchange.

I also like InterOil because it plays right into my "re-inflation" theme I see for 2009. Uncle Sam has been spending money like crazy, and that means inflation is on the way. Mark my words: The dollar will fall, interest rates will rise, and investors will seek comfort in commodities like oil and natural gas. Every investor needs to understand this trend.

It's one of the reasons InterOil is an outstanding buy.

Baytex Energy Trust Is Poised to be the Next Energy Star

Just because InterOil has run up so much so quickly, I don't want you to think there aren't more opportunities in this area. As I've said before, there are good reasons Why Oil Prices Are Headed Higher. And in my opinion, the candidate that's most likely to become the next star like InterOil is Baytex Energy Trust (BTE).

Baytex explores, develops and produces oil and natural gas in Canada. More importantly, Baytex has been able to maintain and grow its profitability even during this period of low commodity prices. The company is very good at planning and managing projects, so Baytex has been able to keep its operating costs low. It's because of this cost consistency that Baytex has been able to produce output at a sustainable level.

The company recently finished off a great year for 2008, including setting records for earnings, sales and production. Baytex has proven reserves of 12.6 million barrels of light and medium grade crude oil, 106.8 million barrels of heavy crude oil and 122 billion cubic feet of natural gas. Recently, the trust acquired two significant land positions to gain access to the Bakken Formation, which holds three to 4.3 billion barrels of light crude oil that's trapped in only about 150 feet of rock.

Two more reasons why I like Baytex are that its stock can move very quickly. The shares jumped 20% in the first three days of this year. Also, Baytex pays a very generous monthly dividend that currently has an annual yield of over 8.5%.

Baytex trades at less than 5.7 times trailing earnings which is a very good valuation. Expect to see a strong earnings report from Baytex on May 12.

Baytex Energy Trust is a very strong buy.

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