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8B – Daily News – Monday, March 14, 2011 Rally in oil stocks means it’s time to rebalance NEW YORK (AP) — You only have to drive past a gas station to know that crude oil prices are near two-year highs. That’s not a pleasant thing for the cost of your daily com- mute, but it has propped up the portfolio of any- one who bought energy stocks six months ago. It’s a tempting thought: Why not buy the stocks of companies that are profiting from $100-a-barrel oil? Ener- gy companies in the Standard & Poor’s 500 are up nearly 10 percent for the year, almost dou- ble the performance of the next best performer among the 10 groups that make up the index. But the more energy prices rise — and the more that energy stocks follow — the greater the chance of an economic slowdown that can squelch a market rally. Just ask Gary Brad- shaw. A Dallas-based fund manager with Hodges Mutual Funds, a company with $415 mil- lion in assets under management, Bradshaw added to his holdings of Exxon Mobil in August when the stock was trading around $60 per share. It’s since shot up to $82. But Bradshaw isn’t as happy as you would expect for some- one with a 35 percent gain in six months. “My problem is that if oil goes too high it will kill the economic recovery and send us back into a recession,” he says. “High oil prices are good for Exxon, but the truth of the matter is that if they go too high it will kill demand.” The ideal oil prices for a strong stock mar- ket are around $75 to $80 a barrel, he says. For now, he is consider- ing the sale of some of his holdings in Chevron and ConocoPhillips if oil reaches $125 a bar- rel. At that level, he says, consumers will stop shopping, spending money at restaurants or buying new vehicles because the money they are spending on gaso- line will make them cost-conscious. With average gas prices up 35 cents a gal- lon since an uprising in Libya began in mid- February, “it’s too late to be buying energy companies now,” Brad- shaw says. Exxon, for instance, is trading at 13.2 times its earnings over the past 12 months. That wouldn’t be high for a technology stock with a lot of expected growth, but it is higher than average for a staid oil company like Exxon. The company has cost an average of 11.8 times earnings over the past five years. Energy companies are a good buy if you expect to hold them for three years or more, says John Canally, a market strategist at LPL Financial. But the jump in prices has pushed his team to lower their rec- ommended holdings for stocks in general. WE STAND BEHIND YOUR RETURN. GUARANTEED. “Higher energy prices can mean higher infla- tion,” he says. He rec- ommends buying com- modities like silver as a hedge. Oil companies may be a good buy for the long run. Exxon, for instance, pays a divi- dend of 2.1 percent, which is more than you’d get from a five- BOOK BARN Used Books Tues-Fri 10-5 ©2010 HRB Tax Group, Inc. 1315 Solano St, Corning, CA 96021 530-824-7999 120 Bell Mill Road, Red Bluff, CA 96080 530-527-7515 Mon-Fri 9 am to 7 pm Sat 10-2 Serving Tehama County since 1994 619 Oak St., Red Bluff (530) 528-2665 The Daily News - At your side when times are tough year Treasury note. The company’s record of increasing its dividend each year is one reason why Exxon has outper- formed the broad stock market over the past 10 years by an enormous margin. An investor who bought Exxon 10 years ago and reinvested his dividends had a total return of 139 percent since then. An investor in a low-cost S&P 500 index fund, meanwhile, had at best a 27 percent total return after fees. But investors who see those returns and decide to increase the energy portion of their portfo- lios should consider doing so slowly. “Oil companies have a very bright future because demand is rising from emerging markets,” says Quincy Krosby, chief market strategist at Pru- dential Financial. She recommends waiting for prices to dip or buying at regular intervals, a technique known as dol- lar-cost averaging. • Everyday Cheapskate •Savage Truth • Gleaners LASSEN STEAK HOUSE “Home of the Sizzling Platter” Corned Beef & Cabbage - all day DRINK SPECIALS OPEN: 11AM-9PM Corner of Hwy 99E & Vina Rd. Call 530 839-2838 Alan Wylie Inspector 4950 Mountain Lakes Blvd #B Redding, CA 96003 Mobile: 530/638-1015 TERMITE INSPECTION FREE & SERVICE* or UP TO 15% OFF TERMITE TREATMENT PEST EVALUATION FREE & SAVE 10% OFF PEST CONTROL SERVICE*