In the past, I've told you where to find 57% of America's best income stocks.
For those who didn't read that article, my research team found that 12 of the 21 best-performing American income stocks of the past decade came from a single sector -- energy. (You can get the entire list of the 21 income stocks and their performance here.)
The success of energy stocks in the past decade makes sense. After all, in the unpredictable world of investing, energy consumption just might be the only sure thing. We've only had one annual decline in the past 30 years -- and even that was a mild 1.1% dip in 2009, as the global economy regained its footing.
But what if I were to tell you that right now, the vast majority of energy users are overpaying for it?
It's a crazy thought. After all, who would pay $3.50 per gallon of gasoline when you can go across the street and pay $3.25?
I certainly wouldn't and I doubt you would either. When given the choice of two similar goods at different prices, consumers gravitate toward the cheaper one almost every time.
But consumers are also set in their ways, as are many business executives. And over the decades, we've grown accustomed to oil as one our chief energy sources. So accustomed, in fact, that we're now overlooking a cleaner, plentiful alternative that is about 80% cheaper.
The graph below tells the story:
This graph shows the price of crude oil versus the price of an equivalent amount of energy from natural gas during the past three years.
A barrel of oil contains about six times the raw energy content of a thousand cubic feet (Mcf) of natural gas. So all things being equal, with oil prices about $94 per barrel, natural gas should fetch about one-sixth as much, or $15.60 per Mcf.
But thanks to horizontal drilling and fracking technologies, the United States is now awash in accessible, cleaner-burning natural-gas resources. And the resulting flood of natural gas has created a surplus, causing prices to collapse.
Right now, natural gas prices are currently languishing at $2.47 per Mcf. Multiply by six, and you see that it costs less than $15 to get an equivalent amount of energy from natural gas as you get from a barrel of oil. So on an energy-equivalent basis, natural gas is roughly one-fourth the cost of oil.
Natural gas isn't just readily available at a 10% or 20% discount to oil -- but more than 80%. These economics are simple but powerful. It's hard to justify paying $1 for an energy source when you can buy something comparable for $0.20.