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Energy Investments Hold Promise

June 02, 2005

By Steve Halpern
The Money Show Digest

Each week we look at the latest investment ideas from the nation's top advisers. Although the recent pullback in oil prices has caused many to grow more cautious on the big, well-known oil firms, advisers continue to find special situations in such areas as energy trusts, merger opportunities and nuclear power.

ARC Energy (CA:AET.UN Toronto) Duke Energy (DUK NYSE) ChevronTexaco (CVX NYSE)

Roger Conrad, Utility Forecaster: "Canadian trust, ARC Energy, has one of the oldest and strongest pedigrees among the energy trusts. Although a lot of other trusts have been out there making acquisitions and becoming more leveraged to oil prices, ARC has cut its operating costs, shed its higher cost reserves and has become less leveraged. They also have a reserve life that is at the top of the industry. The trust is yielding about 10 percent.

"Duke Energy is in the process of a merger with Cinergy. In my mind there are a lot of good aspects to this situation. Buy under $28. It's a long-term player based on a turnaround, good assets and potential growth in the utility industry, which nobody is really paying attention to right now. In addition, the shares currently provide a yield of nearly 4 percent.

"ChevronTexaco is very financially strong. The company had a reserve problem, which it solved by merging with Unocal. The company is a major controlling force in oil, one of the most vital commodities in the world. For investors, I believe the stock, which yields 3.6 percent, is providing an opportunity to own shares in a company with improving quality that has not yet caught the attention of investors."

USEC (USU NYSE) Cameco (CCJ NYSE) Exelon (EXC NYSE)

Tobin Smith, ChangeWave Investing: "We see great long-term prospects for nuclear energy. In China every afternoon there is an electricity brownout. They do not have enough electricity. The only answer to this is nuclear power. For the last 20 years, ever since Three Mile Island, uranium has been in a bear market. But now we have a new type of reactor -- a pebble-bed reactor is going to be the wave of the future for nuclear power. It's a whole different technology, with no chance of a meltdown. There are some outstanding investments in the nuclear energy world. USEC takes uranium and turns it into slightly enriched uranium. It was actually spun off from the government.

"Cameco is the largest pure play on uranium in the world. It is the third largest producer. It is in Canada.

"And Exelon, a utility in the United States, is the largest owner of nuclear power plants, and will likely be an important player as new nuclear plants are added. In addition, because it has nuclear power it is not paying the exorbitant rates for gas that are hurting a lot of utilities. Exelon is the low-cost provider in this sector."

Scottish Power PLC (SPI NYSE)

Ken Kam, Marketocracy: "Scottish Power is involved in electricity generation in the United Kingdom and the Western United States, mostly coal and natural gas. There have not been many new gas plants built in the United States in the last 10 years, so capacity for electricity generation is tight. Scottish Power is now in the process of renegotiating contacts with a number of cities in Oregon and Washington that are going to allow them to recover a lot of the money that has been formerly locked into their plants and was viewed as unrecoverable. The shortage of energy capacity is increasing their negotiating ability. In recent months, the top investors that we monitor have been increasing their positions in this stock by substantial amounts."