Putting some energy in your portfolio

Are low-priced oil and gas investments a trap? Or is this a historic opportunity to buy, now that the commodities' prices have crashed?

Even the experts aren't sure - at least not yet. Just look at activist investor Carl Icahn, who bought heavily into oil and gas bets last year, only to watch those wagers go against him as the price of oil sinks to historic lows.

"I've been in that area for years on and off, and we always did great - except now, obviously, with the price of oil, we're stuck in a couple of them," Icahn said in December, during a podcast with oil perma-bull T. Boone Pickens.

"I think it will work out eventually. . . . It's going to be tough for a while," Icahn said.

Last year, Icahn increased his stake in Cheniere Energy (stock symbol: LNG), bought an 8.5 percent stake in Freeport-McMoRan (FCX), and took a huge hit in Chesapeake Energy (CHK) as owner of 73 million shares. Chesapeake Energy stock plunged this month on news that a team of lawyers was restructuring the company's debt.

If you're a believer in Icahn, you can buy into those companies, too. Or you can make a bet on his holding company and buy shares of Icahn Enterprises L.P., a master limited partnership that itself trades publicly. His Icahn Enterprises stock (IEP) is down from as high as $148 a share in 2013 to $46 now.

But there are other ways to take advantage of this sell-off in your own portfolio. To bet strictly on a rebound in the entire energy sector, there's the Energy Select Sector SPDR ETF (symbol: XLE).

Some closed-end funds are trading at a discount to their net asset value, such as Guggenheim Canadian Energy Income ETF (ENY), which is yielding more than 4 percent.

Other investors, such as Peter Halloran, chairman and chief investment officer at Titanium Exploration Partners, are in the process of appraising and buying direct assets of oil and gas producers and drillers, especially in U.S. shale basins such as Pennsylvania and Texas.

"Some say this drop in oil prices is a net positive because consumers will have more income in their pockets," he said. "But we've seen tremendous destruction in credit in this cycle. And countries with budgets dependent on petrodollars are undergoing tremendous pain, as well," such as Russia, Saudi Arabia, Venezuela, and parts of Africa.

Halloran and his group are wagering that oil prices could rebound to $50 a barrel in the next five years.

"The risk-reward has shifted radically. The odds of price uplift over the next three to five years are significantly higher than they used to be," he said, and that's good for investors in U.S. companies that can manage without the burden of too much debt.

Titanium has been looking at wells and other assets of companies such as Chesapeake and Radnor-based Penn Virginia Corp. (PVAH), which just a few years ago traded as high as $17 per share and now trades for about 6 cents a share.

That doesn't mean the confusion is over.

Said retired hedge-fund manager Michael Steinhardt, who will visit Philadelphia next month to address the Jack M. Barrack Hebrew Academy's 14th Annual Gala: "There are a range of uncertainties that are probable causes of why the markets are weak. Those include the collapse of commodities, a relatively weak economy in many places, and a lack of real insight and vision on the part of most governments."

How to sort the potential winners from the losers?

An independent ratings agency, Rapid Ratings, has crunched the numbers on the energy sector. Its research is helping clients sort through the collapse for less-risky ideas.

The oil and gas drilling and equipment sector, comprised of 56 companies, appears less risky than the oil and gas producers sector, with 103 companies, according to its latest ratings.

And each sector has potentially strong survivors.

In drilling and equipment, Rapid Ratings says, those look to be the company with the most significant quarter-to-quarter positive change, Transocean (RIG), and a company it ranked as very low risk, Atwood Oceanics (ATW).

Transocean is one of Icahn's significant holdings, in which he owns a 6 percent stake.

Among oil and gas producers, Rapid Ratings has upgraded the company with the most significant quarter-to-quarter positive changes, Pioneer Natural Resources (PXD). Western Refining (WNR) was ranked as a very low risk company, as well.

earvedlund@phillynews.com

215-854-2808@erinarvedlund