Ride Ecopetrol Through The Crude Oil Turbulence

EC StockLeverage emerging market growth with growing oil demand.

Ecopetrol (NYSE:EC) is the largest oil producer in Colombia. That may not seem like a big deal, but Colombia is the fourth-largest oil producer in Latin America behind Brazil, Mexico and Venezuela.

At this point, Venezuela is a basket case, so there’s no opportunity for investing there. And Brazil isn’t a star right now either. It’s a great country to invest in when things are going well, but now is not that time.

And then there’s Mexico, which is in limbo given the Donald Trump administration’s trade war with its NAFTA allies Canada and Mexico. Plus, recent elections in Mexico look like they’re getting new leadership that’s also delivering a populist message to the Mexican people. The relationship with the U.S. at this point is an unknown.

So, Colombia may be No. 4, but it’s looking very much like the No. 1 choice right now. The middle class is expanding faster than it has in a decade. Inflation is under control. And oil prices are rising.

When prices tanked in 2015, EC lost almost $1 billion in revenue. But now that oil prices have been on the rise, EC is back on track. According to Reuters, EC’s profit for Q1 of this year was $900 million. And profits are up 300% year over year.

This is what makes EC stock so compelling right now.

Plus, after all that growth, EC stock is still trading at a price-to-earnings ratio of 15.

Reasons for Caution in EC Stock

It’s important to bear in mind that Colombia is an emerging market, and energy production can be a news-driven business. Both those realities mean that as an investor, you need to balance the opportunities with the volatility inherent in investing in an energy exploration and production (E&P) company in an emerging market.

For example, in early 2018, there were protests over a proposed drilling site, which shut down those operations for about a month. And a pipeline from its fields in one region has been attacked by rebels 58 times in the past year.

That’s why it’s important to understand the lay of land in the country as much as it is climate in the energy sector when investing in firms like EC.

Something else that is also a plus for Colombia at this point is, its key superpower investor is the U.S. That means business and development in Colombia is under US supervision and support.

In the new geopolitical game for natural resources, the Chinese have been gaining influence in markets in Latin America that were once thought to be in the sphere of influence of the US.

For example, because of the trade war that’s occurring, the Chinese are looking to Brazil for soybeans and other agricultural goods. The Chinese are also invested in Venezuela’s oil industry and are now very well situated in Chile’s economy for industrial metals.

But even after all the turmoil, EC stock is up 45% year to date and almost 128% in the past 12 months. It may have its challenges, but outsized growth isn’t one of them.

Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

 

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Category: Commodity Stocks

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