| Despite the inevitable increase to energy prices and | | | | their game in order to provide investors with the |
| the allure of oil as a speculative investment that | | | | returns they have come to expect. However, for |
| absolutely "must" reach $150 at some point in the | | | | some of these energy companies that have enjoy |
| future (what with hurricanes, pipeline problems, the | | | | gains almost exclusively from oil related activities (such |
| eventual and complete consumption, limited resource, | | | | as exploration, drilling, etc.) switching to these alternative |
| et cetera, et cetera), investing in energy companies will | | | | energy sources becomes expensive if not impossible |
| almost certainly not be a wise investment for 2010. | | | | in some cases. As companies either invest in research |
| Although these companies are able to turn oil into | | | | and development or go on buying sprees, expect |
| income and profit, there are some fundamental | | | | dividends to disappear and, of course, their equity |
| problems facing these companies for the rest of the | | | | positions to take hits. These are both items that no |
| year and well into 2011 as well. For the reasons outlined | | | | investor wants to see because it hurts the actual |
| below, investors would be wise to find alternatives to | | | | stock price. |
| this sector when investing their money. | | | | 3. In the future, energy companies need to become |
| 1. Energy companies are facing weak domestic | | | | more socially responsible. Whether this means taking a |
| demand (primarily) and what will inevitably be weak | | | | greener approach to their operations and product, or |
| foreign demand as financial crises cripples economies | | | | instilling more favorable human rights policies, or paying |
| in the Euro Zone. Like all companies, energy | | | | higher taxes, the bottom line is that profitability will |
| companies are able to increase profitability when | | | | suffer. Tobacco products firms have already been |
| demand for their product rises. And, as demand | | | | living in such a world and while they have weathered |
| wanes, they must reduce prices in order to attract | | | | the storm, for the most part, their long-term growth |
| those customers. Even big companies like Halliburton | | | | appeal is only as good as their evolutionary plans. With |
| have seen negative revenue growth over the past | | | | more attention given to their industry in the coming |
| three years, which conveniently aligns with the | | | | years, these companies can be expected to struggle |
| economic recession, because demand has not been | | | | in the mid- to long-term as well. |
| there. | | | | By taking a defensive approach to investing in energy |
| 2. Energy companies will find that their industry is | | | | companies, investors will likely save themselves from |
| changing rapidly in the years to come. With the latest | | | | the potential disappointment that comes with weak |
| push on green, alternative energy sources like wind, | | | | demand, shifting business strategies and tighter |
| solar, fuel cell and so on, energy companies that | | | | oversight and scrutiny. |
| provide traditional energy via oil will need to change | | | | |