Since oil moves all of the world’s goods, you should perhaps invest in oil stocks. But which ones? You can just throw darts at the Wall Street Journal, but that isn’t a good long-term strategy. What you will need to do is to some research before going out and buying oil stocks.
Here are a few things to think about when investing in oil stocks.
Global Politics
Many oil companies’ drill for oil in countries that are not very stable. Since there is a chance for those places to become unstable due to civil unrest, then you must realize your invest is at a greater risk. With greater risk, you should then be seeking a greater reward. Investing in oils stocks from Nigeria is obviously more risky than investing in Canadian oil stocks.
What is the oil company’s debt/revenue ratio?
After accessing the political climate of where you are investing, you will now need to look at the financials of the oil stock. How much debt is the company carrying? You should check the debt to revenue ratio to see if this company is in over its head with debt.
Check out the company’s earnings.
All publicly traded oil companies must publish their earning reports. You can either find them on the Internet or contact the company to receive the annual report. This will help consolidate the oil company’s income and expenses over the last year and last few years. You can see if its income has been trending up or down. Do not invest in an oil stock without becoming somewhat familiar with its assets and liabilities.
Which oil stock to choose
You will need to narrow down your list of stocks and only invest in maybe 3 to 5 oil stocks. Anything over that amount can become difficult to keep up with. To make your job easier, you should establish some way of ranking these stocks. It can be done by the cap size of the stock or dividend return. Fins a way to grade your stocks.
Once you have sorted your list, it is then time to implement your plan of action. No need to rush in, establish your buy points and then execute.