The Motley Fool: Consider Spectra Energy for portfolio

The energy sector has been whacked by low prices for oil and natural gas, and that’s presenting some buying opportunities. Consider, for example, Spectra Energy (NYSE: SE), a leading North American pipeline and midstream company. Its operations include more than 22,000 miles of pipelines for natural gas, natural gas liquids and crude oil; about 300 billion cubic feet of natural gas storage; 4.8 million barrels of crude oil storage; and natural gas gathering, processing and local distribution operations.

Spectra’s stock price has fallen by more than a third over the past year, and that has sent its dividend yield up to a recent 6.5 percent. Some worry that the dividend might get cut, as earnings and free cash flow are depressed, but even slashing it in half would leave a significant yield, and the low-price environment isn’t likely to last forever.

Spectra sports a large and growing backlog of projects slated to come online through the end of the decade. Better still, much of its revenue comes from collecting fees for moving natural gas through its huge network of pipelines. That fee-based revenue is secured by long-term contracts, which allows for reliable revenue projections and greatly insulates the company from swings in commodity prices.

Patient investors should take a closer look at Spectra. (The Motley Fool owns shares of and has recommended Spectra Energy.)

Ask the Fool

Q: What’s the “Rule of 72”? - F.S., Shenandoah, Iowa

A: It helps you estimate how long it will take money to double at various rates of growth. Imagine your investment is earning 4 percent in interest annually. Divide 72 by 4, and you’ll get 18. That suggests it will take roughly 18 years to double your money. Earning 10 percent annually, you’ll double your money in about 7.2 years.

The rule works well for growth rates up to about 10 percent and pretty well up to 25 percent. It works in reverse, too. If you want to double your moolah in six years, just divide 72 by six, and you’ll see that you’ll need an average growth rate of roughly 12 percent. It’s even good for inflation. Wondering how long it will take prices to double if inflation is about 3 percent? Divide 72 by 3, and you get 24 years.

Q: What’s a mock portfolio? - M.R., Bremerton, Washington

A: It’s a great way for new investors and others to practice investing. With a mock portfolio, you go through the motions of investing, stopping short of actually plunking down your hard-earned cash. Research companies that interest you, decide which ones you’d buy, and then set up a pretend portfolio.

You can do so on paper, but it’s more convenient online, at financial websites that offer portfolio tracking. (You can set up a watch list at my.fool.com/watchlist, too.) Record details such as when you “bought” the shares and at what price. Then you can follow your performance over time and see if you beat the market.

An online portfolio is also a good way to keep track of your watch list of promising stocks.

My dumbest investment

My dumbest investment was rebalancing my portfolio several times after my Netflix shares soared, without any supporting data to suggest that the stock would trend down. In fact, the reasons I purchased the stock remained consistent. I did this because of all the advice I’ve seen about rebalancing that doesn’t explain why and when to do it. My portfolio would be three or more times as valuable today had I not rebalanced without supporting data indicating it was a good time to take profits. - A.J., online

The Fool responds: There are different schools of thought on this topic. Some will tell you to let your winners run, but if you do so, you run the risk of a strong performer suddenly collapsing. (Netflix dropped 61 percent in 2011, when many investors thought its heyday was over.)

A more conservative approach is to rebalance your portfolio whenever one or more holdings come to dominate it – perhaps once they represent 10 percent to 20 percent or more of it, or if a class of assets (such as stocks or bonds) has grown or shrunk significantly in your portfolio. You don’t need any data suggesting that a given stock will fall – though if it has grown well beyond a reasonable valuation, it may well pull back at some point. (The Motley Fool owns shares of and has recommended Netflix.)