Monday Money Tip: Crude-oil bear market offers opportunities

The early October sell-off created buying opportunities in the industrial sector for companies such as United Technologies (UTX), Eaton Corp. (ETN), and General Electric (GE), says Hank Smith at Haverford Trust, chief investment officer overseeing $6 billion in assets.

In particular, he holds and has been buying more of UTX and Eaton since those shares fell roughly 20 percent. UTX has fallen to about $101 a share, Eaton to $60, Smith says.

The bear market in crude oil also presents opportunity in major integrated oil companies ExxonMobil (XOM) and Chevron (CVX), he adds. ExxonMobil and Chevron shares boast better-than-bond yields with a history of dividend growth.

Smith tracked oil prices vs. oil majors' stock prices over the last four decades. In the 1980s, oil averaged $25 a barrel; Exxon shares' rate of return annually was 17 percent. In the 1990s, oil averaged $18 a barrel, and Exxon shares averaged 13 percent to 14 percent returns annually. In the 2000s, oil averaged $46 a barrel, and Exxon returned 7 percent a year, Smith says.

"These major integrated oil companies deliver shareholder returns regardless of where oil's price is, so we look at the decline as a great entry point for long-term shareholders, not traders."

Chevron, at current prices, has a dividend yield of about 3.7 percent and is a regular dividend raiser, he says.

"You're paid to wait on the stocks' rebounding. ConocoPhillips [COP] also has a dividend yield of 4 percent," he adds, although it's no longer a fully integrated company.

In new accounts, Haverford is buying shares of Chevron, and for current clients, it already owns a 3 percent position in both Chevron and Exxon.

"We're contemplating increasing positions in the oil majors," Smith says.

It is likely that oil-driller shares also will rebound once the price of oil does. One broad way to play a rebound is a closed-end fund such as Petroleum & Resources (PEO), a Baltimore-based fund that operates as an investment company.

Mark E. Stoeckle, CEO of Petroleum & Resources, said recently that the fund would distribute each year an amount equal to at least 6 percent of the fund's trailing 12-month average month-end market price.

This year, Petroleum & Resources will pay out distributions of 6.6 percent. The payable date for the distribution is Dec. 23, for shareholders of record as of Nov. 24.