Simple investments, with easy to understand investment theses, are one of the best ways to make consistently long-term profits in the stock market. And while I am a firm believer in this investment strategy, there is nothing wrong with the occasional bet on a well-researched speculative stock. Once a portfolio of lower-risk investments has been established, investing a small percentage of your money in a Powerball-like stock could be well worth your time and money. Below are three oil-related speculative investments I currently have marked on my watch list for further research:
Heckmann Corporation (NYSE:HEK) began its life in 2007 as a `blank check’ company formed by Richard Heckman; a company with no actual business activities. Early investors in Heckmann Corporation (NYSE:HEK) were essentially investing in the CEO’s money-making track record, rather than an actual company. And an impressive track record Richard Heckmann has had over the years. In the 1990s, Heckmann was the founder and CEO of United States Filter Corporation, which under his leadership was acquired in 1999 at a price about 14 times higher than its 1991 IPO price. He similarly sold sporting goods maker K2 in 2007 to Jarden, shortly before forming Heckmann Corporation (NYSE:HEK). Richard Heckmann has certainly proven himself in the past. In just a few short years Mr. Heckmann has turned nothing into a company poised to benefit from the immense opportunity that is the US oil renaissance. Still a speculative company, but not a bad job thus far.
Speculative Renewable Oil When talking about Solazyme Inc (NASDAQ:SZYM), people often use “biofuel” to describe the company’s business activities. And while Solazyme Inc (NASDAQ:SZYM) is involved in biofuels, that description alone does not do the company justice. Solazyme is a renewable oil company; in all of oil’s various uses. Using its “indirect photosynthesis” process, Solazyme harnesses the power of nature’s greatest oil producers (microalgae) to create oils that are tailored specifically for (1) vehicle fuels, (2) industrial chemicals, (3) personal care and cosmetics chemicals or even (4) food products. Solazyme Inc (NASDAQ:SZYM)’s addressable market is much larger than simply a renewable source of gasoline.
Solazyme Inc (NASDAQ:SZYM) is still very early in the development of its business. Although management hopes to be cash-flow positive by next year, no one (including Solazyme management) is expecting to turn an annual profit anytime soon. This is precisely why Solazyme is so speculative. Despite the speculative nature of the company though, it does have the backing of many big names that are helping to build-out Solazyme’s operations via investments, joint-ventures, distribution and partnerships. These names include Chevron Corporation (NYSE:CVX), The Dow Chemical Company (NYSE:DOW), Unilever N.V. (ADR) (NYSE:UN), Honeywell International Inc. (NYSE:HON), Bunge Ltd (NYSE:BG), and the United States Navy (to name only a few). While the backing of large multinational companies and the US military is no guarantee of success, it certainly is encouraging for a company this early in its development.
Speculative Oil Region Although I am stretching my definition of oil speculation a bit, it is hard to ignore the region of the world most associated with oil: the Middle East. The Middle East can be a difficult region for your average US retailer investor to directly invest in, but BlackRock simplifies the process with their iShares MSCI Frontier 100 Index Fund ETF. Much like China and India of decades ago, the Middle East is potentially at the beginning stages of exceptionally-fast growth for years to come.
The Middle is not known for being the most stable region of the world (the understatement of all understatements!). But BlackRock attempts to mitigate some of that risk by investing in the comparatively-peaceful and western business-friendly Middle Eastern (and African) nations: 26.98% in Kuwait, 16.9% in Qatar, 13.57% in Nigeria and 11.06% in the United Arab Emirates. The Frontier 100 ETF is heavily skewed toward the financial sector (54%), but the ETF’s top four holdings are fairly diversified with National Bank of Kuwait (7.06%), Mobile Telecommunications Company (6.33%), EMAAR Properties (4.34%; classified as a financial, but actually real estate developer) and Nigerian Breweries (4%). Nigerian Breweries in particular has recently been a big focus of emerging market-minded investors looking for a way to play the relatively untapped investment opportunity that is Africa.
Foolish (Big F) Speculation
While I certainly would not recommend a portfolio full of highly speculative investments, there is nothing inherently foolish (small f) about allocating a smart part of your portfolio towards a few high-risk, high-reward opportunities. Although adding more risk to a portfolio, it also keeps things interesting and encourages us to become more engaged in the investing of our own money. And bonus: speculating can also potentially (if done wisely) make you a lot of money! Quite (Big F) Foolish.
The article Speculative Oil Investments originally appeared on Fool.com and is written by Matthew Luke.
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