This is the lead-in to the new teaser ad from Steve Sjuggerud and Brett Eversole for the True Wealth Systems newsletter (currently being advertised at $2,000 for two years, auto-renewal price unknown, no refunds):

“In a troubling turn of events, one of the most important components to life on earth is in short supply like never before. We’re not happy about it. In fact, we’re extremely concerned.

“But in a market of very few opportunities, this could be the only one that will reliably make you hundreds of percent gains in the coming months.”

And what Sjuggerud is talking about with that intro is really just, “oil and gas prices will remain elevated, and investors in those companies will do very well.” The True Wealth services have tended to focus on relatively short holding periods of up to a year or two in the past, with Sjuggerud generally trying to trade sectors that are “cheap, hated, and in an uptrend,” but we haven’t looked at anything from them in a while.

They lead into a long promo pitch about why they think oil prices will stay elevated or go through another bull run from here (invasion of Ukraine, low capital investment for years in oil, COVID, fear of recession, transition to “green” energy that is impacting investment appeal but will not impact oil and gas demand for another 10-20 years, etc.), but we’ll skip over that — it makes sense, and I think they’re probably right about a lot of it, but you don’t need the promotional bit.

If you’re interested in a bullish appraisal of the energy space right now that’s NOT also a newsletter sales pitch, I’d suggest the “Why Buffett is Buying Oil Companies” podcast episode from We Study Billionaires, it goes into a lot of detail on the global oil and natural gas dynamics and it’s an interesting listen.

So I’ll jump straight to the five stocks that Brett Eversole teases as being in their “2022 Oil Boom Portfolio” — can the Thinkolator ID them from the clues provided? I’ll warn you, the clues are pretty light this time out, so I’m going to do a lot more guessing than usual.

Here are the clues for number 1:

“I’ll start with the first recommendation we are going to send you the moment you decide to take the True Wealth Systems approach…

“It is a company we refer to as the “Royal Gold” of oil and gas…

“And we call it that for good reason. Unlike most companies involved with the exploration and drilling for oil… this company doesn’t require any capital expenditure because they don’t own any hardware… just the rights to the oil under the ground. They lease drilling rights… And as the demand for oil rises, so could their profits. Not only did this stock soar almost 6x last time around… Nothing else in the sector offers a return potential like this.”

That could be a few different companies, there are a fairly large number of royalty companies who essentially take a slice of all the oil and gas produced from their royalty lands, without having to do any of the drilling or production work (not unlike a mining royalty, which is where the Royal Gold comparison comes in). Many of them are tied to just one or two oil fields, and some are complex trust structures that are really in “run off” and depleting their assets, but there are a few that are more appealing because they’re fairly diversified and open-ended.

That’s not enough clues to pick one specific player from this bunch, but I suspect they’re probably re-recommending Freehold Royalties (FRU.TO, FRHLF) in Canada — that’s been a Stansberry recommendation in the past. It could also be Texas Pacific Land Trust (TPL), though that’s more popular these days so is perhaps less attractively valued, or Black Stone Minerals (BSM), another fairly open-ended oil and gas royalty partnership that has caught my eye before… or maybe even one of the real location-specific trusts in Texas, or a company like Dorchester Minerals (DMLP).

Freehold did indeed soar close to 6X the last time oil and gas prices spiked, from 2009 to 2014, and they had a similar run from the COVID bottom to the highs of earlier this year, so it matches on that specific clue a little better than most. From bottom to top over the past two+ years, Freehold has been one of the strongest performers, if not the strongest, of the more open-ended and flexible oil royalty companies.

Both BSM and Freehold Royalties are strong dividend payers right now, both have exposure to both oil and natural gas, Freehold probably gets a little margin edge because more than half of their production is in Canada — Canadian producers have the potential to be a little bit more appealing, just because they are working in Canada and have lower-cost operations in US$ because the exchange rate has gotten pretty wildly tilted to the South, so that might encourage more active production in Canadian oil and gas fields, which could provide a little tailwind… though Canada has been the anchor in recent years, the real growth has come from their decision in 2020 to begin expanding much more aggressively in the US, so they’ll be 50/50 Western Canada and Texas before too long.

Assuming Freehold is the match, which is not certain but is a solid guess, it’s a pretty reasonable way to play a strong energy market — they say they have “divdidend coverage” down to $40 when it comes to US oil prices, they’ve been reducing their debt, and they are paying out only 43% of their cash flow, which should be sustainable. And unlike Black Stone Minerals, Freehold is a corporation, not a MLP, so you don’t have to deal with the K-1 forms… though it probably is a Passive Foreign Investment Corporation (PFIC), which creates its own minor bookkeeping hassle, and Canada does withhold 15% of dividends as their tax. Freehold’s reporting sound somewhat like what we usually hear from real estate companies, they focus on their Funds From Operations (FFO) and aim to pay out 60-80% of that cash flow as dividends.

The dividend has soared in the past couple years, as oil prices have recovered from the COVID crash and their Texas royalties have grown, though this is still a commodity-driven investment — when oil was weak from 2015-2019, their cash flow and their divdidends were much lower, this recent growth in the dividend still has them far short of what they were paying out in 2014.

Not a bad play, given their strategies and their move to buy up relatively inexpensive US oil royalties over the past couple years — the dividend should be pretty sustainable at this level if oil and gas prices don’t crash, and they pay monthly, which income investors tend to like (it’s currently nine cents Canadian per share, per month, so at C$14/US$11 or so that’s roughly a 7.5% yield).

What else?

“The other recommendation I want to send you the details about right away has soared as much as 440% in oil booms of the past. And the reason why is they’re a crucial player when it comes to helping other companies get oil out of the ground. They build, operate, and maintain all kinds of rigs in over 100 countries. As demand for oil rises and companies pump oil around the clock to meet demand, these rigs will inevitably need a LOT more servicing and repairs. As that happens, we expect this company’s bottom line to swells like a balloon. It doesn’t matter who needs the oil or where, this company will get their piece of the pie.”

There are a few big oil services companies who might match those clues, but the Thinkolator tells me the best match is the one you can probably think of off the top of your head: Halliburton (HAL), one of the largest global oil services providers, second only to Schlumberger (SLB), and HAL did have a return of about 440% from the bottom in 2009 to the top in 2014. And rose more than that from the COVID bottom in March of 2020 to the peak a few months ago. You could certainly make Schlumberger fit those ads, too, you just have to go back one more bump in the oil cycle, to the 2003-2007 surge in oil prices that was driven largely by China’s emergence as a growing oil consumer. Both have been among the strongest oil services companies for generations, with very good growth and solid management most of the time, but you can see the challenges of being a long-term investor in the oil patch if you look at the comparison to the S&P 500 — oil has gradually become less important to the US economy, and booms and busts in the oil price have taken their toll on the service providers. That’s the S&P 500 in orange, Schlumberger in Purple, and Halliburton in blue.

More recently, from the era of the ETF onward, we can see the various sectors — this shows that since about 2006, none of the big energy sectors have been “buy and hold” contenders. ExxonMobil (XOM) in brown has held up best through the down cycles for oil, and Halliburton and Schlumberger have kept up with the average oil producers (in pink), but the average oil services company has been more often on the “bust” end of the boom and bust cycle.

It’s sometimes the smaller oil services companies that get exciting during times of booming prices, when demand goes through the roof… but they also often go bankrupt during the bust, when prices fall back down, and over time those busts really eat into shareholder return. Bet on oil services stocks, whether bit ones or small ones, if you want some leverage to oil prices… but I wouldn’t be very tempted to “buy and hold” in that group, even with the very best companies like Schlumberger and Halliburton. And I am not great at trading these kinds of sectors as they surge and collapse, I tend to be too stubborn, so I mostly avoid trying to time those cycles — you may well be better at it than I am, particularly if you’re good at being disciplined with tight stop losses.

Those are kind of “downer” charts, mostly because that last one started in 2006, when oil stocks were pretty elevated. You can pretty much make a chart say anything you want, so let’s be fair and balanced with this — if you want the optimism chart, here’s how those same companies and sectors have done since the March 2020 COVID low… that’s Halliburton and the oil services ETF leading the pack:

Moving on to the next one, another oil services pick:

“Another opportunity we’re incredibly excited about in the oil space is a little-known firm that is set up to scale quickly. Something that most companies trying to take advantage of a boom tend to struggle with. They’ve seen returns in the neighborhood of 5x during past booms too. But the longer this boom plays out, we could see this one go much, much higher. The reason is they manufacture one of the most important parts of an oil rig. When this part fails, the whole operation ceases and in many cases the rig can be destroyed altogether. These parts need to be replaced frequently and the demand for them goes sky high as drillers race to take advantage of high prices.”

I’m not really an expert, but I assume that we’re talking about one of the more specialized parts on an oil rig — so it could be a fairly large and diversified company like National Oilwell Varco (NOV) or Weatherford International (WFRD), which provide a variety of parts and services for drilling and production, there isn’t really a firm clue to latch on to here. I’ll throw out Cactus (WHD) as a wild guess, but, to be honest, that’s because when I skimmed down the list of oil services companies that was the one I had never heard of before (they’re fairly new to the public markets, they came public in 2018).

For what it’s worth, Cactus (formerly called Cactus Wellhead) makes wellheads and pressure control equipment, which are certainly core parts of a drilling rig — I assume the only part that would be more likely to make a drilling project fail spectacularly is the blowout preventer, but that’s entirely a guess, I am not at all an expert on this stuff. Cactus is fairly expensive, with a forward PE of 25, but has had blowout growth in the past year or two, so on that metric the stock is about as cheap as it’s been since 2020. The “boom and bust” scenario certainly played out for them in the past, though, so do be careful with your assumptions — revenue dropped from $628 million in 2019 to $349 million in 2020 when COVID hit, so you can see how a falling oil price and falling demand for drilling take a big and fast bite out of a company like this. They’re not alone, of course, all the big oil services companies similarly had their business shrink 30% or so in that year, and much more than that in the immediate crash months of mid-2020.

Another?

“The fourth company I want to send you information about right away is our favorite independent oil company. Unlike other smaller oil drilling companies, this one doesn’t need oil prices to be over $100 a barrel in order to mint money. Prices could fall 15%-20% and they still make money hand over fist. This is why they’ve tripled in value during past booms and if our predictions about the future of oil are correct… the gains this time could far outstrip their past successes.”

No real idea on this one, that’s not enough clues for a decent match — pretty much any reasonably conservative oil and gas company, from giants to wildcatters, can make money if oil is at $60 a barrel. I’ll throw out Pioneer Natural Resources (PXD) as a guess here, but that’s only because I know the Stansberry folks have liked it in the past. It’s not particularly small, with a market cap of about $60 billion, but it has been very capital efficient in the past, more conservative than a lot of smaller oil companies, so it has a steady profitability that investors tend to be attracted to even when oil prices dip, and it’s at about 10X earnings with a high 8% dividend. If you want to go smaller, Coterra Energy (CTRA), which works in both the Permian and the Marcellus/Appalachian areas and has some exposure to gas exports (through the Maryland LNG facility), is an interesting one, too, they were formed from a merger of some past newsletter favorites (Cabot and Cimarex) and they say a lot of similar things to Pioneer about being focused on profitability and discipline. Coterra has a market cap around $24 billion — they’re also relatively cheap at 8X earnings, with a 5% dividend yield. Don’t know if those are the match, but they fit the general idea.

And one more…

“Today you’ve seen why new pipelines aren’t getting built… and why politicians are doing their best to shut down the few that are still in operation. And this is exactly why you need to see the details on the fifth company we’re including in today’s model portfolio. It’s one of the largest pipeline companies in the United States. Previous booms have caused their share price to increase by more than 250%. But what makes this recommendation even more exciting is the crazy high 7.5% dividend. It’s been growing its dividend distribution for the past 24 years and shows no sign of letting up.”

There are a lot of fairly large and consistent energy master limited partnerships (MLPs) that own pipelines, gathering systems, storage, and other midstream assets in the energy business, and they are relatively stable when compared to the actual oil companies, mostly because they essentially operate as “toll road” businesses and aren’t directly driven by oil prices (though the throughput and ultimate level of demand obviously matter, and that’s related to prices).

This one is likely to be one of the real biggies, and the Thinkolator points us toward Enterprise Products Partners (EPD) — they do indeed have a yield of about 7.5% right now, and they have been increasing the dividend annually for exactly 24 years in a row (since the IPO, that is, they went public in July of 1998).

I usually use an ETF for my MLP/pipeline exposure, the Alerian MLP ETF (AMLP), mostly because I don’t want to deal with the K-1 forms and I’m happy to take the average of the big players and give up the MLP tax benefits, but EPD is likely to be a good choice if you want to buy individual MLPs. (What’s that tax advantage? I’m not a tax expert, but MLPs are somewhat like REITs in that they have to pay out most of their income to shareholders/unitholders if they want to avoid corporate income tax. They usually pay out much more than is required, since depreciation charges are high for pipelines, so that gets classified as a “return of capital” rather than income, and therefore you don’t pay taxes on those gains until you sell — and I think you can still bequeath your MLP shares to an heir without selling, letting that heir start over at a new cost basis, though don’t listen to me when it comes to estate planning.)

The bad thing about ETFs is that they include the stinkers as well as the best performers, and Enterprise Products Partners has been one of the best performers for a long time — here’s that comparison of total returns since the last oil peak, about eight years ago, you can see that AMLP (purple) has done much worse than EPD (orange), thanks to some large and weaker MLPs in the index like Plains All American (PAA, green) and Energy Transfer (ET, pink), (I’ve thrown in another relatively strong performer, Magellan Midstream (MMP, blue) for comparison):

I’d like to tell you that I would have known back in 2014 that EPD would be the leader and ET and PAA would lag, but of course I didn’t… PAA does the same stuff as many of the big MLPs, and is concentrated right in the Permian Basin, where you’d think you’d want to be, and yet it went through a massive boom into 2014 and has busted quite dramatically since. That’s pretty much why I live with the ETF and its average results, MLPs are a strange sector, with opaque accounting and lots of assets that can be stranded if production patterns change, and I’m not particularly great at figuring out which is the best one. Still, EPD seems reasonable, largely because it has a broad array of facilities and products, especially for processing natural gas and natural gas liquids, and they’ve been admirably consistent.

So there you have it — five stocks for an oil boom market, some of them guesses and some good matches. I’m not 100% certain of many of those stocks being in Steve Sjuggerud and Brett Eversole’s new recommended list, I’m afraid, so in this unusual case I’d be happy to be right on just two or three of those guesstimates this time around (normally I don’t publish unless I’ve got at least a couple 100% certain matches, but lots of readers were asking). Hopefully those ideas will at least steer you into some productive research if you’re interested in the big-picture oil story. Feel free to comment if you’ve got better matches for those limited clues, or any insight into those areas of the energy market… and thanks, as always, for spending some of your precious time reading my blatherations.

Disclosure: Of the investments mentioned above, I own shares of Warren Buffett’s Berkshire Hathaway and the Alerian MLP ETF. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.