3 Investment Themes for a Market Sell-Off

3 Investment Themes for a Market Sell-Off

Investors should be scared! Or at least that's what the media is telling us. Political dysfunction in Washington has shut down the government. Chinese manufacturing is in decline. Italy is in some sort of a political crisis. This has caused a predictable reaction from the stock market sending the Dow Jones Industrial Average down a few hundred points this past week.

But when the headlines are gloomy and the market is meek, I like to circle back to big themes, secular trends that I can count on to deliver growth. So here are the top three investment sweet spots in the energy business.

1) Book your ticket to Saudi America
America is in the midst of an energy renaissance. Earlier this month, the Department of Energy reported U.S. oil production during the first week of September averaged 7.7 million bpd, which is the highest weekly output for crude oil since May 1989. According to some estimates, the nation could achieve energy independence by 2020.

Leading the charge to independence is EOG Resources . The company's name is synonymous with some of the fastest growing shale plays in North America including the Eagle Ford and Bakken formations. These plays have fuelled incredible numbers at EOG with production growing at a 37% annual clip over the past seven years. But what's even more exciting is that company's position in new formations like the Delaware Basin could be even bigger than the Bakken and the Eagle Ford that came before.

2) Ridin' the pipelines to profits
With America awash in oil, it has created a bull market for anyone that can transport the stuff from where it's produced to where it's needed. Everywhere you look -- be it the oil sands, the Bakken, or the Eagle Ford -- a shortage of transit capacity has forced producers to move their output by trucks and trains. But over the long run the pipeline industry should win out due to its inherent price advantage.

Enbridge's sole mission is to solve this problem. The company operates one of the largest pipeline systems in the world and has $28 billion in secured growth projects over the next three years. That means no congressional approval needed. These projects are good to go.

What's even better about Enbridge is that the company is a great way to play surging North American energy production but without the price risk found in traditional producers. Only 5% of the company's earnings are exposed to commodity, interest rate, or currency risk.

3) Opportunity is spelled L.N.G.
In North America, hydraulic fracturing has unlocked vast quantities natural gas. But worldwide, prices are much higher due to growing demand and tight supplies. It's a huge opportunity for anybody that can get cheap American gas to the global market. The problem is that any exports first require the construction of expensive liquefied natural gas, or LNG, terminals. And this requires government approval.

But there's some evidence that the Obama Administration is about to open the floodgates. Earlier this month, the U.S. State Department granted conditional approval for Dominion Resource's Cove Point terminal in Maryland to export up to 770 million cubic feet of natural gas per day. The approval comes about a month after the Obama administration granted similar permission to Lake Charles Exports.

The best way to play this development is Teekay LNG Partners which owns the vessels that transport LNG. It's a great business because of the high barriers to entry. It costs a lot of moola to build an LNG ship, and that gives Teekay protection from new competitors.

But if the Obama Administration continues to grant LNG export licences, a shortage of LNG tankers could emerge and shippers like Teekay could be the next bottleneck in America's gas export plans. And in economics, to the bottleneck goes the spoils.

Foolish bottom line
A year from now investors will still be talking about these long-term, secular trends. The latest political theater in Washington will be forgotten by the next news cycle. Fortunately given the jaded reaction by investors, I think they understand that already.

America's Energy Explosion
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The article 3 Investment Themes for a Market Sell-Off originally appeared on Fool.com.

Robert Baillieul has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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Originally published