The folks at the Oxford Club are launching a new service this week that they call Peak Energy Strategist, run by David Fessler, who I guess has been an energy analyst for them for a while … like many folks, he claims to have a special set of indicators that he uses, in this case likening them to the algorithms that keep satellites in space.

And believe me, I’m not going to try to imagine what his secret algorithms might be — he says that his indicator (he calls it the Peak Energy Indicator, PEI) is based on nine calculations, including these seven that he’s willing to share in the ad:

“Trend analysis
Obscurity level reached
Demand trigger
Game-changing discovery
Resource flow rate
Discovery/Cap Ratio
‘Window’ trigger”

And it seems clear to me that most of those could mean almost anything — ie, this isn’t a magic formula, but a way to quantify the happy feeling that you get from stock that you think should go up. It’s no surprise that some of the things you would look for in a possible investment would be a “demand trigger” or a “game-changing discovery” … and many of us do love investing in stocks with an “obscurity level,” but obviously there’s not a screen that can reliably flag those stocks for you… so I’m just going to assume that David Fessler, like most newsletter analysts, picks stocks that he likes by using a variety of factors.

Does he pick good stocks? Well, there isn’t any track record to speak of for this new newsletter yet, of course, but he has been writing about stocks for a while, and apparently working on energy picks for the Oxford Club (like the Fredonia Reactor, perhaps? Dunno for sure), and he has written articles predicting great things for geothermal stocks in recent months, though I’ve never written directly about one of his picks (that I know of). I’ll stipulate that he knows a lot about energy investing … let’s see if we can sniff out his teased picks, then you can decide for yourself how they look.

I’ve seen two different ads for this service over the last couple weeks, and in them he says that his general strategy is to play both sides of the “peak energy curve” — meaning that he thinks we should invest for the future, stuff like advanced batteries and geothermal energy, as well as for the “past” and present, stuff like oil, coal, and natural gas, since there won’t be a single switch thrown next year that gets rid of coal plants and replaces them wind turbines. Hard to argue with that basic philosophy, which I think is probably shared by most energy investors.

And in service to that strategy he has teased two different picks in his ads — the first one is a lithium play, and we know there ain’t many of those so let’s knock that one out quick …

“One company set to power 23 billion electric cars…

“The PEI is locking onto a highly unusual energy company. It’s hitting on all nine PEI factors… and will likely earn a spot in my first report.

“As you may have heard, President Obama is pumping $2.4 billion into electric vehicle production in an effort to put one million of them on the road by 2015.

“He’s also providing a $400 million “down payment” on infrastructure for electric cars… along with a $7,500 tax credit to the first consumers to get on board.

“As the demand for these green vehicles heats up, the lithium to power the batteries will send a few companies skyrocketing.

“And most people don’t know that one of the world’s largest lithium deposits is hidden under a South American desert… just east of the mountain range known as Cordillera de Domeyko.

“That’s where one mining company found enough lithium to power 23 billion electric cars.

“At current prices, the deposit is worth $1.3 trillion.

“That’s 130 times greater than the company’s market cap.”

OK, so that’s not a huge clue, but if you can do the math you know that 1.3 trillion is 130 times greater than … $10 billion. A pretty big company. And there are a handful of big lithium-related companies in the world, but only if you’ve lost a couple of fingers on that hand. By far the largest publicly traded lithium stock, and the one that dominates that “world’s largest lithium deposit” in the Atacama Desert in Chile is SQM (SQM), so that’s who we’re dealing with here. The market cap is currently about $9 billion, and SQM is far larger than the second-place company working on lithium production in this desert, that being Rockwood Holdings (ROC).

Both companies have been teased pretty heavily in the past, most recently Rockwood as part of that “battle for the 3rd element” teaser from Money Map, and both have significant other businesses, so lithium production is not their only driver. In the case of SQM their biggest business is fertilizer and various ag nutrients, and they also have a huge iodine business, but lithium is indeed a major focus — all of their markets took a tumble over the past year or two, and 2009 profits were down, but investors are clearly expecting some significant growth, from Lithium and from a recovery of global agriculture, as they stock trades with a PE of 27 (forward PE of 20 on estimated earnings).

Hard to go wrong with SQM if you think lithium will be a critical element that gets massive price increases in the years to come, and if you believe that global food demands should continue to benefit fertilizer companies, but this is a big company that addresses several markets so it’s probably not going to double in a matter of weeks or months — the shares are down 25% or so from the January peak, perhaps because there’s so much overhyped lithium talk that many traders have gotten impatient with their relatively slow recovery from the downturn.

And the other stock that was teased in recent email ads for this letter? A natural gas play, in this case largely a gas pipeline play … here are the clues:

“The Company that Will Build America’s Natural Gas ‘Super Highway’…

“Currently 210 natural gas pipeline systems run throughout the U.S.

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“Reaching 305,000 miles, the pipeline creates a virtual ‘superhighway’ that delivers gas just about anywhere in the country.

“This company owns 15,000 miles of natural gas pipeline… And distributes 12% of the country’s total natural gas consumption.

“It has 10,000 miles of pipeline in place to transport natural gas from the Gulf Coast to New York, New Jersey and Pennsylvania….

“A 3,900-mile system runs gas through crossing Washington, Oregon, Idaho, Wyoming, Utah and Colorado…

“And with just a tiny, 745-mile pipeline, this company controls 25% of all the natural gas pumping to Florida…

“In a single day, this company’s pipelines can transport 12 billion cubic feet of natural gas.

“That’s enough to heat over 30 million homes in America.

“And over the next 2 years, it’s spending $1.2 billion on expanding the pipeline ‘superhighway,’ which will catapult its delivery revenues in the coming months. ”

So who is this? Well, there are several interesting companies in the pipeline space, most of them MLPs, but this one happens to be … Williams Companies. Or, possibly, Williams Partners, the MLP that is controlled by Williams Cos.

Williams is an integrated natural gas company, they produce natural gas from places like the Barnett Shale, they process and store it in midstream businesses, and they own the vast majority of Williams Partners, which is the Master Limited Partnership (MLP) that owns the actual pipelines (and Williams Cos also owns the general partner for those pipelines, which is the controlling partner that manages and oversees — folks like you and I, shareholders/unitholders, would be the limited partners who just invest and take our checks).

So, since the talk is all of the pipeline and not of the other operations, I assume the teaser target here is the MLP — Williams Partners (WPZ) is indeed among one of the fairly large MLPs that own most of the interstate pipeline systems, including Transco, which is that one that runs from the Gulf to the Mid Atlantic and Northeast, and the Northwest Pipeline. That smaller Florida one is called Gulfstream, just FYI. MLPs are primarily owned by individual investors, and primarily bought for their tax-deferred yield (most MLP distributions tend to be classified as return of capital, so they just reduce your cost basis and let you put off paying taxes until you sell). Williams is not among the higher yielders, but that’s not surprising — the relatively large and stable MLPs generally trade with lower yields because of a lower perceived risk, as do the companies who primarily own large interstate pipelines instead of regional gathering systems that are overly reliant on a particular customer or gas field. The current yield is 6.6%, which has tended to be as low as these have gotten in the years that I’ve been looking at them, though that’s still not bad compared to the income you can get from bonds these days — and MLPs generally have enough pricing power, and friendly enough regulators, that they can consistently raise their rates and their distributions as long as gas traffic is high enough (they earn based on volumes transported, not on the actual price of the gas).

Still, WPZ is tiny compared to the really big players. The parent, Williams Cos, is a pretty big firm at a $12 billion market cap, but the partnership has a market cap of just $2 billion — very small compared to the biggest pipeline owners like Kinder Morgan (KMP) and Enterprise Product Partners (EPD) which are each 10 times that size, and which have essentially the same dividend yield.

If I were just looking for steady yield that grows nicely over time I’d probably stick with the bigger players, but Williams is certainly big enough to be relatively stable, especially given the quality of their assets, and they also have more growth potential — expansion is riskier for a smaller company like this, but it certainly has the potential to more dramatically increase their cash flow than similar expansion projects would for the bigger players. I happen to own one midsize MLP, Boardwalk Pipeline Partners (BWP), that I personally like for their shale field growth potential and their management’s expansion plans, but I like most of these businesses — the only caveat I’d share is that they are income investments, so they are subject to pressure when interest rates rise (they compete with bonds, on some level, in investors’ minds) … and that historically it’s been more advantageous to buy them when yields are nearer 10% than the current 6.5-7%, but that’s kind of a “duh, thanks” thing to say now that those higher yielding days are passed for the moment … just a warning that in my limited experience they’ve kind of topped out at 5-6% yields, a point that we’re getting pretty close to now. That doesn’t mean the prices will fall, but I think it takes away some of the upward potential.

The corporate structure gets a little bit confusing, the ticker for the parent, Williams Companies, is WMB; the ticker for the large MLP that owns most of those three pipelines is WPZ (the one I think he’s teasing here), and there’s also another subsidiary trading as Williams Pipeline Partners under the ticker WMZ (that last one is far smaller, they primarily own a third of the general partner of the Northwest Pipeline. No, I have no idea why that’s split out).

So what do you think? Interested in Williams Partners or in SQM? Think they’re both too big and boring, or too expensive? Let us know with a comment below.

Full disclosure: as noted, I own shares of Boardwalk Pipeline Partners. I do not own shares of any other stock mentioned above, and won’t trade in any investment I write about for at least three days.