Devon Energy stock shows big potential for future growth

Devon Energy’s Cana Plant, which services west-central Oklahoma, will have a processing capacity of 350 million cubic feet of natural gas and 30,000 barrels of natural gas liquids per day when an expansion is finished in 2013.
Devon Energy’s Cana Plant, which services west-central Oklahoma, will have a processing capacity of 350 million cubic feet of natural gas and 30,000 barrels of natural gas liquids per day when an expansion is finished in 2013.

Looking for a good energy company for your portfolio? Check out Devon Energy (NYSE: DVN). It’s a major oil and gas producer with a balanced production mix and a vast and diversified portfolio of high-quality assets all over North America. And with a couple of recent joint ventures under its belt, the company’s prospects for future growth look brighter than ever.

Devon has been known as a predominantly natural-gas-focused company. But recognizing the poor economics of the dry gas business given low gas prices, Devon has been shifting its focus to higher-margin oil and natural gas liquids. For the year, Devon has allocated 100 percent of its $6 billion-plus capital budget toward oil and liquids-rich projects. It also has a solid track record of growing oil production in recent years. Meanwhile, Devon maintains the flexibility to shift back to drilling for dry gas should prices rebound sufficiently.

The company has one of the strongest balance sheets and liquidity positions among its peer group, having ended the second quarter with more than $7 billion in cash and short-term investments.

Since 2003, Devon has reduced its net debt by more than $3 billion, while still raising its dividend by an annual average of 26 percent since 2004. Its dividend recently yielded 1.5 percent. (The Motley Fool owns shares of Devon Energy.)

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A: Ideally, follow the companies frequently – perhaps every three months, when quarterly reports are issued. At that time, read through the report (the annual report is long, but quarterly reports are much briefer) and through past press releases, which you can usually find at company websites. With big, established, long-term holdings, you can get away with checking in less often. Younger, smaller outfits such as shoemaker Crocs are likely to fluctuate much more than blue chips such as General Electric. But even blue chips can have sharp moves.

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The price alone doesn’t tell you much. A $300 stock might look pricey, but if the company’s shares are really worth $500 each, it’s a bargain. Google shares recently traded at $670, but four years ago they were $300. (The Fool owns shares of Google and its newsletters have recommended it.)

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My dumbest investment

My dumbest investment involves microprocessor designer ARM Holdings, which I simply sold too soon. – S.C., online

The Fool responds: One of the tricky parts of investing is believing in yourself and patiently sticking to your convictions. If your research has made you pretty sure that a company has competitive advantages and a bright future, you may have to wait a while before the rest of the market catches on. ARM Holdings, which some see as overvalued at the moment, has rewarded long-term shareholders well. It has averaged a 30 percent annual gain over the past decade.

Of course, it’s also smart to keep up with the company, to make sure that it remains promising over time. If your original reason for buying into it evaporates, then consider selling. You might also consider selling if you find a more compelling company. But don’t be too fickle, as frequent buying and selling can be costly, due to commission costs and short-term capital gains tax rates. Aim to always have your money focused on your best ideas, the stocks you most expect to grow.

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