Investing in oil and gas refers to the investor purchasing stocks from the stock market in the oil and gas sector. These stocks are often referred to as prime stocks due to the fact that they often yield a high return on investment and as such can be quite lucrative.
Before you decide you want to invest in the oil and gas market you will need to know how to buy stock in oil and gas to give yourself the best chance of a high return.
The most important consideration for an investor learning how to buy stock in oil and gas is to find out whether the stock they are interested in buying is valued or not. The reasoning behind this is that oil and gas stock prices tend to be more hype than value.
Research The Fundamentals
To determine if this is the case of a stock you may be interested in you will need to find out the stocks actual value by looking at the stocks price earnings ratio.
If the stock has a ratio of more than twenty then this is an indication of a possible aggressive growth strategy, this could be in the form of a recent land purchase or perhaps a new drilling program about to begin. This is not a hard and fast rule however as such a future event may not always have the effect on the stock that the investment community had expected.
It is also important to stay abreast of current events that could effect the oil sector such as political and economic conditions as these can have massive implications on oil costs and production.
Trust Units For Steady Cash Flow
It is also important to consider the fact that the oil and gas stock may have been converted to become what are known as trust units. These are aimed at investors looking for a steady cash flow from their stock and these trust units can be particularly good for people who are learning how to buy stock in oil and gas as they tend to be rather secure.
For the more savvy investor who wants to hold on to an oil or gas stock for a longer period of time for the potential of high growth the trust unit is not the recommended course of action.
When learning how to buy stock in oil is is important to realize that oil and gas stocks must be analyzed on the percentage of natural gas versus the percentage of oil in the stock. For example, you would not want to buy stock in a natural gas focused oil and gas company while the price of natural gas has reached a peak due to the fact that if the price of gas tumbles, so then will the price of the stock.
If you were an existing stockholder in this type of company, it would pay you to sell in this circumstance to protect from losses, or to realize any gains you may have made in your investment.
It also makes good sense for the investor to watch out for any insider trades going on in the market, as these could indicate potential moves in the market both to the upside as well as to the downside.