In energy stocks, it’s drill, baby, drill

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Oil drillers still look good despite fall in gas prices. | AP

Updated: July 10, 2011 2:20AM

You’ve probably noticed, maybe even celebrated, the lower prices at the gas pump this summer. Prices are down about 30 cents a gallon from a month ago, according to AAA. It has nothing to do with electric cars or people driving less.

Instead, it’s good old-fashioned fear. Prices are off because investors are afraid the global economy is wheezing and won’t require quite as much oil. But market sentiment can turn quickly, and political instability in the Middle East remains a threat to output.

As Morningstar analyst Jason Stevens wrote, “We think the supply and demand tensions are balanced on a pinhead, and any major development in either direction is likely to strongly affect oil prices.”

So Stevens is a believer in the stocks of companies engaged in deepwater drilling for oil. He’s also a long-term bull on natural gas drilling, although the fundamentals there are different. The price of natural gas has been relatively low, but there are indications production is drastically slowing. Stevens says that should lead to firmer pricing in 2012.

His top energy picks include oil drillers Transocean (RIG), the largest deepwater company, and Baker Hughes (BHI), which Stevens says will benefit from international growth and an internal reorganization.

Stevens also has high ratings on three exploration companies, including two devoted to natural gas. They are Range Resources (RRC) and Talisman (TLM). His final stock pick, Ultra Petroleum (UPL), combines interests in oil and natural gas.

He called RRC “one of the lowest cost producers of natural gas” and spotlights UPL as a takeover target that could command more than $64 a share. The stock closed Friday at $46.32.

TECH TESTS: Shares of Google (GOOG) lost $14.61 Friday to close at $531.99 after Morgan Stanley lowered its rating for the stock on expectations of reduced profit margins. Morgan Stanley also cut its price target for GOOG to $600 from $645.

For another tech bellwether, Apple (AAPL), the story is positive. Its shares moved about 8 percent higher last week, closing Friday at $359.71. Canaccord Genuity analyst T. Michael Walkley reiterated his “buy” rating on AAPL and boosted the price target to $500 from $485, saying Apple will maintain its dominance “of both the tablet and smartphone markets to drive healthy long-term growth.”

CROPS ON CAMPUS: Well, that didn’t take long. Corn prices, the subject of last week’s column because of their sudden tumble, recovered last week to get back to their recent trading range. Soybean prices also regained lost ground. Both are at twice the price they traded at five years ago.

Elevated prices for commodities probably are the “new normal,” said Purdue University agricultural economist Mike Boehlje. He sees global food demand as the primary force in the market. But he also said farmers and others in crop production contend with higher costs, so “margins are not likely to stay unusually high.”

As for the supply side, Iowa State University researchers are part of a project funded by a $5 million federal grant to develop a corn variety that will produce high yields despite global warming. Research has shown that corn yields can drop 25 percent during sustained temperatures of higher than 90 degrees.

The operative word in this market is “more” — more supply, more demand. Volatility is likely whenever a weather scare causes worries about production.

DATA DELIVERY: Barchart.com, a Chicago-based provider of market data that’s a low-cost option for anyone who can’t afford a Bloomberg terminal, has introduced a service called Market Pages. It lets users customize the data they would like to see and compare. Using it requires registration for a free account.

The site is supported by advertising, premium data services and subscriptions to its newsletters, but a substantial amount of its content is free.

CHICKEN LITTLES: “The next, worse financial crisis. . . . Ten reasons we are doomed to repeat 2008,” blares a headline on a Brett Arends column at MarketWatch.com.

“Population bomb: 9 billion march to WWIII,” blares a headline on a Paul Farrell column at MarketWatch.com.

Columnist Charles Kraut-hammer told Fox News the economy is so permanently bad that middle-age Americans “may never get employed again.”

Jeesh, guys, could you tone down the doomsday stuff a little, at least until I can find the perfect backwoods hideout in Idaho?

CLOSING QUOTE: Friday’s weak data on jobs “came as a blow to the body of the American economy and will no doubt complicate the negotiations going on at the White House to reduce the deficit. Knowing the deficit needs to be cut and going home to voters with the blood of those cuts on their hands are two entirely different things.” — Diane Swonk, chief economist, Mesirow Financial