Energy stocks haven’t been the best investment over the past several months largely due to falling oil prices. While the S&P 500 is up around 10% on the year, energy stocks within the index are up just 1%. Over the next 12 months, this trend could certainly reverse as crude oil and natural gas prices have already begun to rebound. But why wait until then? The energy industry is still profitable and undervalued, and I think this could be a great time to invest:
Evan Calio, an energy analyst at Morgan Stanley, wrote recently that many stocks trade "near liquidation value," and the group as a whole is valued at "trough" levels, based on such measures as price to cash flow and reserves relative to enterprise value, which is stock-market value plus debt. He likes stocks that can do well "without commodity support," which is to say rising prices. His favorites include Chevron, Anadarko, and Hess.
JPMorgan strategist Thomas Lee is likewise bullish on energy, noting that the price ratio of energy stocks relative to the S&P 500 is near lows reached at the 2009 market bottom and during the 2010-'11 low. After those troughs, energy rallied more than 25%.
Is now a good time to invest in energy stocks that have been punished by low oil prices? Which companies look the most appealing to you?
Personally, I like Chevron (CVX). The company has boosted its dividend every year for the past 25 years, and it yields 3.3%. It's also trading at just 8.3x earnings and has $11 billion dollars in cash. Exxon (XOM) has been another long-time favorite that could provide some stability relative to the broader industry.
Investing in energy can be risky, as a company can be susceptible to volatility from swings in commodity prices that are generally out of its control. Still, the industry is inexpensive relative to historical price ratios, and more people seem to be expecting higher oil and natural gas prices in the coming months.
While the energy sector has trailed this year amid a drop in oil prices, the world is going to be heavily dependent on oil and gas for decades. That should provide plenty of profits for a range of companies in a still-growing industry.
How much of your portfolio do you dedicate to energy investments? Within this industry which group do you find most attractive: Exploration and Production like Apache? Major Integrated Oil and Gas like Exxon? Oil Services like Halliburton?
What article are you quoting? Here's one you might find interesting.
http://m.seekingalpha.com/#article/790471-slow-and-steady-wins-the-race…
[quote=HOVA]What article are you quoting? Here's one you might find interesting.
http://m.seekingalpha.com/#article/790471-slow-and-steady-wins-the-race…]
I like that seeking alpha article, Exxon is definitely a safer play and has been pretty consistent over the past 20 years. I linked to the article at the bottom of the post, here it is: http://online.barrons.com/article/SB50001424053111904599504577550943590…
Similar story for gold stocks. Alot of them are trading at their 2003 levels when gold was around $400/oz.
Bro, you're late to the party. Already up nearly 50% on Valero. Up huge on CVX and PSX, as well. I think oil is definitely a good place to be and still is, but you're late to the game. Huge upside back half of 2012. PE's of these companies is laughably low.
I am Long HES-US LNG-US UNG-US and about to pick up XOM - definitely bullish on Energy. My reasoning is that knowing the technologies and efficiencies that are currently out there for non-commodity based energy (ie. solar, wind, hydroturbine), they do not light a candle to the combustables (pun intended). Demand for energy is gauranteed to steadily increase, and I believe that the progression of usage will edge towards natural gas (in terms of transportation). Power generation, ngas is stilll supplemental to coal, and is incredibly dependent on the $3 threshold. Regardless of price, the dependence on upstream services will increase (hence HES, LNG). UNG is a hedged play against LNG, which depends on lower Ngas prices. As time will go on, other countries will start to explore and drill for ngas and the price will steadily converge to a low price (US is not the only country with ngas, you know).
In combination to my bullish upstream thoughts, XOM is a perfect downstream play. Whereas upstream is somewhat growth oriented, XOM is truly a value.
Long term, the natural gas supply glut is going to thin out as global infrastructures and trade networks are adapted to shift from coal-based electricity production to gas-based. It's cheaper, more efficient, and the US has a fuck ton of it. I think it's too soon to make a substantial investment in companies specializing in that simply because there are literally hundreds of variables in the equation, ie FERC passing international shipping regulations, all of which making the timing a bit difficult.
There's a lot of money to be made on O&G volatility plays--just a couple weeks ago prices were at $78, so if you're good with your options, you can make yourself some serious cash.
Look for MWE and other midstream firms to explode in coming years as NGL prices and demand increase. $.02
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