Crowell Roberts Investment Blog

Stocks said farewell to June after a 2% loss, leaving the market flat for the quarter but still ahead 2% for the first six months of 2011. The month closed out the first half with four straight solid up days, the best run in six months. That lifted spirits but stock investors still welcomed July like vacation bound schoolchildren chanting “No more sell-offs, no more crooks, no more brokers’ puzzled looks.”

Report cards are coming soon with the earnings reports for the quarter ending in June. Slipping stock prices pressured many analysts into lowering some forecasts but we can still anticipate overall gains. With the economic recovery still wobbly, attention must be paid to company forecasts for the second half of the year. These usually show tempered optimism, an attitude that will probably be adopted by investors.

Meanwhile, currency issues in the Euro zone will continue to plague the world’s central banks. Some recent stock market strength was attributed to a temporary solution to fiscal problems in Greece. Those who follow stock market forecasters might consider that none of them predicted that the American stock market would go up hundreds of points because the Greek Parliament passed an austerity measure.

Trying to forecast short-term market movements attracts attention to the commentators (and their sponsors) as does forecasting the weather, although with less accuracy. Their reporting of past price movements is more accurate but less useful as it tends to agitate investors into reacting to news rather than anticipating trends.

Energy prices are an example. Their fluctuations make easy news stories, aggravating moves in related stock prices. Investors should leave short-term trading to the pros, allowing longer-term energy price increases to provide a useful base to oil and gas stocks.

I am certainly not hoping for higher energy prices, recognizing the headwinds they present to most consumers. I personally support conservation and alternative energy efforts but reality requires that I recognize persisting upward pressure on oil and gas prices. As an investment advisor, I continue to carry a 10-15% position in client stock portfolios in quality oil, gas and energy service stocks.

Several factors support longer-range upward price moves in their products. The strongest is probably the increasing growth of emerging economies. Expanding household incomes produce accelerating demand that quickly moves beyond basic needs to autos, entertainment and the other energy-consuming trappings of modern life.

Inflation and moves by central banks to ease currencies to promote jobs push up prices of commodities like oil. Geopolitical events like this year’s Arab Spring often reduce readily available supplies. Exploration efforts sometimes yield new fields but extraction from existing reservoirs seems inexorably more difficult and certainly more expensive.

Technological breakthroughs may ease supply pressures but these are rare. New developments like shale extraction hold promise but raise environmental, cost and safety issues, as do other once heralded alternatives like biofuels. Nuclear energy is going through one of its periodic setbacks and most other alternatives now need some form of government subsidy or favoritism.

All these factors are particularly supportive of sales growth for technologically savvy energy service companies. I continue to recommend Core Labs (CLB-$111), which provides global services in analyzing oil and gas reservoirs and enhancing additional extraction from them.

Carbo Ceramics (CRR-$162) makes ceramic propellants used worldwide for hydraulic fracturing (“fracking”). Weatherford (WFT-$18) is a larger, Swiss-based company that provides a variety of equipment and services for oil and gas production. These two are new buys. I expect their new earnings report cards will show all three at the top of their class.