In this issue:

Energy bulls are back and in a lather, and they’re starting to keeping us up late some nights. We’re not particularly worried that Noble Energy (NYSE: NBL) is overvalued now that its shares have been bid up after it paid a fat premium for another publicly listed driller that’s been on the auction block for months.

We’re more worried about the message this sends to other bidders, corporate and retail, who may have forgotten the lessons of 2014 and the definition of “winner’s curse,” if they ever knew it. The degree of enthusiasm out there is making us question how much gas the energy rally has left in its tank.

What’s, not in doubt, given the deals and the market’s response to them, is that we’re in rally mode still. Sure the XLE is down 4% since closing at a 19-month high on Dec. 13. But its decline to the rising slope of the 50-day moving average looks like one of those refreshing pauses.

It’s telling that oil services giant Schlumberger (NYSE: SLB) is at its own 19-month high still, while shale drilling champ EOG (NYSE: EOG) is worth more now than it was in August of 2014 with crude at nearly $100 a barrel.

Not so coincidentally, these industry leaders and longtime outperformers are buys again for us — and, in fact, are on our new 2017 Best Buys list. We don’t think they’ve come back all this way only to drastically roll over. But when the inevitable skim of the current market froth does arrive, they should hold up better than almost any other name.

Midstream pipeline operators are another good way to play offense now and defense later, and the Alerian MLP Index has rewarded our faith by rallying 11% since Election Day. Midstream names account for 5 of the 12 Best Buys on the new slate, and we’re obviously very bullish on their outlook given the increased oil and gas volumes headed their way this year and next.

Many of those pipeline plays were also our favorites a year ago, and while a few did great other had merely a decent year, weighing on the average performance of our portfolio recommendations. As our review of 2016 results suggests, our year on the whole was better than decent, as we unearthed multiple huge second-half outperformers to offset first-half losers.

We want to be accountable for all the recommendations that we make; what we don’t want is for their outcomes to overshadow our main mission of keeping you informed about the developments in energy investing. Last January we predicted the slump would get worse, and it did. The next month, with Energy Transfer Equity (NYSE: ETE) below $5 a share we alerted you that the drubbing presented a tremendous buying opportunity, as it did. We forecast the summer rally in natural gas and the upturn in shale stocks following OPEC’s quota cuts.

We weren’t always so right of course, but hopefully you found us informative throughout. It’s already clear that there will be no shortage of energy developments in the coming year. We aim to help you stay well informed and capitalize on the opportunities that will present themselves.      

Portfolio Update

• EOG (NYSE: EOG) upgraded to Best Buy in Growth portfolio below $120

• Schlumberger (NYSE: SLB) upgraded to Best Buy in Growth portfolio below $95

• Foresight Energy (NYSE: FELP) Buy limit increased to $9 in Aggressive portfolio

• New Best Buys list published

Commodity Update

Since our previous issue, oil prices have held up as the market sorts out whether the OPEC production cuts will be effective. West Texas Intermediate and Brent crude grades are both holding above $50 per barrel. Natural gas continues to show strength above $3 per million British thermal units.

In Other News

• Noble Energy (NYSE: NBL) agreed to acquire Clayton Williams Energy (NYSE:CWEI) for $2.7 billion in stock and cash, representing a 34% premium

• The U.S. Energy Information Administration (EIA) reported that the average gasoline prices in 2016 were at the lowest levels since 2004

• U.S. energy companies added oil rigs for the 10th straight week to bring the total to 529, an 18-month high but still down by two-thirds from the peak in 2014

• Japan has received its first shipment of liquefied natural gas (LNG) from U.S. shale

• NRG Energy (NYSE: NRG) began commercial operations at the world’s largest carbon capture system, a $1 billion project nearly 10 years in the making

• New York Governor Andrew M. Cuomo announced plans to close the Indian Point nuclear power plant, which has been supplying New York City with electricity for over 50 years

• Protests continue to rock Mexico following a gasoline price surge of as much as 20% as the nation’s gasoline prices were deregulated.