Oil and Gas Stocks That Might Gush in Your Portfolio

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some oil and gas stocks to your portfolio, the iShares Dow Jones U.S. Energy ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.47 %. The ETF recently yielded about 1.7%.

This ETF has performed rather well, beating the world market over the past three, five, and 10 years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a low turnover rate of 8% , this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

Why oil and gas?
Oil and gas exploration and production companies are worth considering because, despite growing interest in alternative energy, we're still quite dependent on good old oil and gas.

More than a handful of oil and gas companies had strong performances over the past year. Valero Energy , a major refiner, soared some 76%, profiting from lower crude oil prices. (Lower crude prices mean lower input prices for refiners and, thus, higher profit margins.) The company's fans like its solid fundamentals and growth prospects, but bears worry about possible fallout if fracking activities are reined in by regulations.

The nation's largest independent oil refiner, Phillips 66 surged more than 50% since its debut in April, after being spun off from ConocoPhillips . Bears worry about competition and tight profit margins, along with falling oil prices -- and California's plans to sue the company don't help, either. Bulls see asset utilization improvements and expect continued profitable "crack spreads" for the near future. The company recently hiked its dividend by 25%, so that it now yields about 1.9%, and it's doubling its share-repurchasing plans. Phillips 66 plans to form a master limited partnership for its transportation assets soon.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Halliburton gained 2%, but is a top dog in its business and attractive to many. It has been hurt by a glut of natural gas, leading to a cutback in drilling operations. Halliburton has already warned of a soft third quarter in North America due to this. On the other hand, though, the company's expertise in mature fields, unconventional markets, and deep drilling are pluses. And its revenue and earnings growth rates have been accelerating in recent years, with both firmly in double-digit territory. Some also expect rising guar prices to boost profit margins (guar is used in fracking) and like Halliburton's broadening reach in developing economies such as Brazil.

National Oilwell Varco , down 5%, is the biggest U.S. maker of oilfield equipment, with my colleague Aimee Duffy pointing out that, "Ninety percent of the world's rigs have National Oilwell Varco equipment on them..." Its last quarter featured more double-digit growth. Some would like to see its profit margins grow more, and it's still very much affected by oil-price volatility and supply-and-demand issues.

The big picture
Demand for oil and gas isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

National Oilwell Varco is, perhaps, the safest investment in the energy sector due to its industry-leading 60% market share. This company is poised to profit in a big way; its customers are both increasing the number of new drilling rigs, as well as updating an aging fleet of offshore rigs. To help determine if NOV is a nice fit for your portfolio, check out our premium research report with in-depth analysis on whether NOV is a buy today. For instant access to this valuable investor's resource, simply click here now and claim your copy today.

The article Oil and Gas Stocks That Might Gush in Your Portfolio originally appeared on Fool.com.

Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool recommends Halliburton Company and National Oilwell Varco. The Motley Fool owns shares of Halliburton Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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