A Search for Value in the Ruins of Energy Sector Stocks (XLE)
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Price: $95.70 -0.44%
Rating Summary:
0 Buy, 0 Hold, 0 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 12 | Down: 10 | New: 14
Rating Summary:
0 Buy, 0 Hold, 0 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 12 | Down: 10 | New: 14
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Bent oil is down $30 per barrel, natural gas is near 10-year lows, the coal industry in shambles, the economy in Europe is contracting at a rapid rate, China continues to slow, and growth in the U.S. is anemic. It doesn't take a professional equity analyst to see that investing in energy sectors stocks poses a few risks.
Energy stocks have lagged the S&P 500 so far this year, with Energy Select Sector SPDR ETF (NYSE: XLE) down 10.5 percent so far this year, while SPY gained 3 percent.
If there is value in the space, Oppenheimer analysts Fadel Gheit and Robert Du Boff think it is in the major integrated companies, which usually benefit from investors' flight to quality. Large companies also pay dividends, and in the current environment it impacts their stock performance. But dividend growth might be more important, notes Oppenheimer, as it underscores management confidence in the company's financial outlook.
Gheit and Du Boff think most energy stocks are attractively valued with upside potential greater than the downside risk from a further decline in oil and gas prices. They also make note that PE multiples in the space are below historical averages, so there is potential value in the industry.
Going forward, Oppenheimer thinks investors are going to be willing to pay a premium for energy names with production "growth potential", and the "shale revolution unlocked huge resources that will likely drive future growth, with more emphasis on liquids over gas."
With this in mind, Oppenheimer's top energy pick is Anadarko Petroleum Corporation (NYSE: APC).
Energy stocks have lagged the S&P 500 so far this year, with Energy Select Sector SPDR ETF (NYSE: XLE) down 10.5 percent so far this year, while SPY gained 3 percent.
If there is value in the space, Oppenheimer analysts Fadel Gheit and Robert Du Boff think it is in the major integrated companies, which usually benefit from investors' flight to quality. Large companies also pay dividends, and in the current environment it impacts their stock performance. But dividend growth might be more important, notes Oppenheimer, as it underscores management confidence in the company's financial outlook.
Gheit and Du Boff think most energy stocks are attractively valued with upside potential greater than the downside risk from a further decline in oil and gas prices. They also make note that PE multiples in the space are below historical averages, so there is potential value in the industry.
Going forward, Oppenheimer thinks investors are going to be willing to pay a premium for energy names with production "growth potential", and the "shale revolution unlocked huge resources that will likely drive future growth, with more emphasis on liquids over gas."
With this in mind, Oppenheimer's top energy pick is Anadarko Petroleum Corporation (NYSE: APC).
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