How to Evaluate Energy Stocks

As demand for oil and alternative fuels have increased globally, energy stocks have grown in popularity as long-term investments, according to Investment Daily
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Growth in energy innovation and consumer demand has caused investors to flock to energy investments. The energy industry is the third-largest industry in the United States, according to SelectUSA. Reuters and Investment Daily consider energy stocks to provide stable, long-term investments during shaky economic times. A little research and patience can help you locate high-performance energy stocks with which to diversify your portfolio.

Evaluation Process

Step 1

Read industry magazines and journals to better understand industry basics and where the industry is heading. Determine which companies are reputable and which are beginning to make a name for themselves. Zoom in on a particular energy source or diversify into various forms of energy creation. The specific energy industry you choose can determine the risk level and yield of your energy portfolio. Options include energy minerals, alternative energy and major oil production. Websites such as those of Bloomberg and "The Wall Street Journal" have entire sections dedicated to the latest energy news.

Step 2

Monitor key energy stocks. Compare each stock's performance with its benchmark. Ensure that the stock is matching or outperforming its index. Look for the overall trend before buying and selling energy stocks unless you want to day-trade your stocks. Keep up with the energy futures market on financial websites and news broadcasts to discover where the stock is expected to be in the next few months. Compare each stock's performance and select stocks that demonstrate the most potential.

Step 3

Check the relative strength index to ensure that the stock is not overbought or oversold. If an RSI is above 70, the stock is overbought. If an RSI is below 30, the stock is oversold. Inspect quarterly company reports on the Securities and Exchange Commission's website to determine if the company is stable. Use financial statements to locate key information to plug into performance formulas. Use indicators such as the price-to-earnings ratio to determine the current value of the stock.

Step 4

Select stocks from reliable companies that have the potential for growth. Buy stocks in these companies when the stock price is low. Monitor the stocks regularly in financial newspapers and on websites. Analyze quarterly reports to ensure performance endurance. Remain active in your investments by analyzing your energy portfolio's performance regularly. Continue to read industry journals and magazines to remain informed of challenges and growth within the energy sectors.

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