Get Some Skin in the Game!

They always say that if you're going to invest your money with someone, it's best if that person has some of his or her own "skin in the game". In other words, you wouldn't want to give $100,000 of your retirement to some guy to invest in stocks and bonds if he is completely on the sidelines himself. (That is, is holding all cash) You should feel much more confident in that person if he is currently invested as well, as he not only has a job to generate a return for you, but also for himself. I bring this up because I just bought shares of Stone Energy for my own portfolio.

As you know, it was the strongest of the 3 oil and gas stocks in my "Warren Buffett and I" research, which allowed it to be in my virtual portfolio. Schwab equity reports has an A rating on the stock. I did some research on other stocks' performances after having received a Schwab "A" rating, and they have performed very well. Other analysts have "Buy" or "Outperform" ratings on SGY, with price targets near its 2011 highs of $34-36. Stone is cheap at just 6.6x forward P/E, while its peers are averaging 14.8x. It's price to book value ratio is 1.9. A stock with a P/BV of less than 3 is usually considered undervalued.
(Data taken from stockmarketsreview.com. Here is a link to an informative article on SGY.)

It's technicals look good too. Have a look:

If the blue line (50 day moving average) crosses the red line (200 day MA), that is called a bullish 50/200 crossover or the "golden cross". It is an extremely bullish technical indicator that would imply upward movement in the price of the stock. I've been following SGY for a while now, and I remember looking at it back in October of 2010. Here is what I saw:


Notice the 50/200 crossover? Also notice the well beyond 100% gain in approximately 8 months? Needless to say, I should have bought it when I saw the promising golden cross back in October of last year.

SGY looks like it could be setting up for another run here. Demand for oil will continue to be strong as long as we do not have a global economic downturn.

I've been watching CNBC and a few research analysts have confirmed that they believe oil will remain above $100/barrel going into 2012.

As you see, all data points in favor of Stone Energy being an outperformer in the future. The only thing that could weigh down its future prospects and share price is decreased demand due to crisis in Europe or elsewhere. Either way, I'm confident in my decision that oil will be a great investment in the long term. Hopefully it will be in the shorter term as well.

Not only is Stone Energy in my virtual portfolio, but it is now also in my real portfolio. You better believe I've got some skin in the game. Do you?

Cheers,
EZ

P.S.- Don't buy Stone Energy on my recommendation alone. Always do your own due diligence.