One theme in 2011 could be a pick-up in merger and acquisition (M&A) activity in the oil patch. Oil prices are now hovering around$90 (U.S.) a barrel and could go higher, assuming reports continue to come out showing theU.S. economy is gaining traction.
Meanwhile, interest rates are at rock-bottom levels, making it easy to borrow funds for M&A. And thanks to higher oil prices, company cash flows are ramping up, providing another means for M&A.
Junior-oil stocks should be primary takeover targets in an M&A orgy. Bigger companies will want to build their reserves and properties; some junior oils will want to grow by acquisition. On this basis, Im tempted to tilt more toward the oil-and-gas sector in 2011 with the BMO Junior Oil Index ETF ( ZJO).