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As US Energy Sector Flourishes, So Do Key Stocks

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The oil and gas development revolution sweeping the U.S. appears to be exerting a halo effect on stocks in key industries -- and not just those in the energy sector.

The United States, the world's largest consumer of oil, is ramping up its own energy production in a way that looks likely to add some ballast to a still lackluster recovery. U.S. oil production is at its highest levels in a generation, with the boom greased by new technologies and more streamlined industrialization.

In particular, analysts cite the exploitation of shale, natural gas and fossil fuel resources as pushing investors toward the energy sector as a whole – especially the stocks of companies involved in the drilling and extraction of oil.

Energy sector watchers often cite EOG Resources and Hess, both of which are very active in the Bakken region of North Dakota and Montana – a hotbed of U.S. energy development. Over the last year, EOG has surged about 13 percent, while Hess is up about 18 percent.

"EOG is obviously a leader in oil shale, and one of the first companies to invest quite a bit" in the alternative energy source, said Brian Youngberg, senior energy analyst at Edward Jones. The firm maintains a buy rating on both EOG and Hess.

Oddly enough, "the larger companies are not necessarily the big players" in emerging U.S. regions, said Fadel Gheit, senior energy analyst at Oppenheimer. He said that energy giant ExxonMobil is still a largely peripheral player in Bakken.

While shares of Exxon are up a relatively modest four percent year over year, other domestic energy players have given investors bigger returns. McMoran Exploration's stock has skyrocketed by more than 28 percent year over year, and Anadarko Petroleum – which this week announced a massive oil find in the Shenandoah field in the Gulf of Mexico – has seen its stock jump 11 percent.

Yet the virtuous cycle extends to other industries as well, analysts note.

"The shale gas boom has been a transformational event in the U.S. chemicals industry," said Alex Khutorsky, managing director of chemical industry at The Valence Group, a merger and acquisition advisory firm. "It's probably difficult to overestimate the importance of shale gas revolution on chemical production and manufacturing."

Natural Gas is instrumental in producing plastics and other industrial-related products, for example.That may provide an explanation behind why major chemical companies have also seen a strong run-up in their stocks as the U.S. energy revolution takes hold.

Dow Chemical, whose CEO has spoken favorably about natural gas and the US energy boom overall, has seen its stock climb since hitting a 52-week low in November. It now trades near $32, just a few dollars shy of a 52-week high.

DuPont, another manufacturing and chemical industry giant, has also been on a steady climb since hitting the year's low last fall. It now trades less than $4 short of a 52-week high.

Logistical and infrastructure challenges are hurdles to transporting oil long distances across the country, which may be why Goldman Sachs is still lukewarm on energy as an investment. In a research note this week, the firm rated the energy sector as "neutral".

Oppenheimer's Gheit joked that oil is like "forbidden fruit: You want to have it but it's hard to get."

Still, he expects that technological advances will help alleviate bottlenecks, and spill over into other sectors. "Eventually technology will unlock more and more oil," Gheit said.

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