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Energy Darlings

Two Fidelity funds ride the boom in commodities.

Finding bargains in a corner of the market that's on fire is no easy feat. Just ask John Dowd, manager of Fidelity Select Energy Service and Fidelity Select Natural Resources funds, both among the top-performing natural-resources funds over the past year. Dowd, who took the helm of Energy Service at the end of 2005 and took over Natural Resources in July 2006, doesn't buy stocks based on his expectations of where oil and gas prices are heading. Instead, he looks for companies whose shares trade for less than the cost of replacing their assets. In the oil-exploration-and-production sector, for example, the ideal Dowd company would be one that sells for less than its costs for finding and developing energy reserves.

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Select Energy Service, with 59 holdings, invests in companies that supply the rigs, manpower and technology to Big Oil and independent energy producers. Recently, one-fourth of the fund's $2.4 billion in assets resided in Schlumberger (symbol SLB); National Oilwell Varco (NOV) accounted for nearly 10%. The more diversified Natural Resources fund, with 172 stocks and $1.9 billion in assets, also holds energy-service firms, along with a mix of large and midsize companies tied to oil, natural gas, coal and an assortment of metals. ExxonMobil and Valero Energy recently represented 12% of assets, but the fund also held the likes of Alcoa and Meridian Gold.

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