Serious Money/Chris Johns: Investors in oil and commodity stocks are doing very well again. Oil prices have stayed high - and are showing all the signs of moving up further still - while commodity price see-saws have not persuaded me to change my view that the longer term trend in many basic materials is still firmly up.

Serious Money first mentioned BHP Billiton and BP over a year ago and both companies have done well. Not surprisingly perhaps, both stocks have had something of a rocky ride - resource companies are not for the faint-hearted - and the most volatile of the two has been the global mining giant, BHP. BHP is only now pushing back towards the peak seen earlier this year - £7.67 (€11.52) on February 25th - but is well in the money compared to the £5.00 level prevailing in the first quarter of last year. BP has recently pushed up to three-year highs and looks like it might test the £6.00 level, a very healthy return compared to the £4.50 prevailing when we first started talking about the stock.

Of course, BP and BHP are not the only oil and mining stocks that we could have made money in over the course of the last year or so. There has been a global boom in smaller, rather less well-known, resource stocks. And plenty of the larger, more familiar, names have also done well. Even so, BP has yet to regain the heights seen at the turn of the decade. Some investors remain sceptical about oil stocks for two reasons.

First, there is the obvious uncertainty attached to the oil price itself. Several high-profile forecasters have made and lost reputations with extreme oil price forecasts of one kind or another.

Indeed, one sure way of making a name for yourself is to assert that oil prices are about to explode or crash. Right or wrong, your name goes up in lights, at least for a while.

A Goldman Sachs oil analyst had his 15 minutes of fame earlier this year with a call that oil will hit $100 a barrel some time soon. More recently, Andy Xie of Morgan Stanley hit the headlines with a forecast that the oil price was in danger of collapse.

What are investors to make of this? Well, to a certain extent we all have to make some kind of assumption about the likely profile of oil prices, even if we are honest enough to admit how tough this is. One way to approach this is to ask an oil analyst to work out the long-term oil price assumption embodied in current company valuations.

If, for the sake of argument, we can work out that the market is putting a value of $25 a barrel on BP's known oil reserves, we can say whether we think this assumption is right. As it happens, we can do these calculations and it seems to me that markets are not valuing most oil companies correctly.

My guess is that high oil prices are here to stay and that the markets are valuing the reserves of oil companies far too conservatively.

Scepticism about oil stocks also arises because of concerns about how much the oil companies are going to have to spend to replenish their reserves. All the cash flow from the oil they already own could be wasted in an attempt to discover oil that either isn't there or is too expensive to dig out of the ground at a profit. This is a genuine concern and is related to another important issue, namely the accuracy of estimates of existing reserves. Shell has attracted a lot of bad publicity in this regard and has been forced to cut its estimates of proven reserves more than once.

So far, the evidence is not in the sceptics' favour. Oil companies, if anything, might prove to be a touch slow to spend money on capital investment. This, as an aside, is one of the reasons we have high oil and petrol prices in the first place: companies have learned that the stock market rewards management teams that don't do much investing.

The stock market obsession with free cash flow may have induced just a little too much capital discipline. And, most obviously, the oil price is not showing any signs of an imminent collapse. My money is still on oil stocks as a good investment for the foreseeable future.

Commodity stocks are at the flaky end of a volatile sector. Some companies, like FTSE100 company Antofagasta, are pure plays on one commodity price (copper in the case of that particular company). Other mining companies are more diversified. But the arguments about commodities are similar to the ones we hear about oil.

High commodity prices are not expected to last, courtesy of a global slowdown, Chinese economic meltdown, etc. The companies themselves are expected to start digging new holes in the ground just as demand for their products falls away, thus creating, not for the first time, a vicious downward spiral in commodity prices.

As with the oil companies, however, commodity stocks are showing one or two signs of capital discipline. Management teams seem to be more interested in acquiring each other than sinking new mines. Some lessons of the past seem to have been learned.

Resource stocks will always be volatile. But, like real estate, the basic product of the sector is one that is in fixed supply. There aren't too many areas of the global stock market for which this is true.

Chris Johns is an investment strategist with Collins Stewart.