econintersect .com

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 09 March 2017

An Excellent Year For Energy

by Robert Rapier, Investing Daily

Investing Daily Article of the Week

A year ago, a barrel of oil was worth something in the low $30s and natural gas prices stood below $2/MMBtu. This was the lowest natural gas price in nearly two decades, and some energy analysts seemed to be vying to make the most outrageously low prediction on future oil prices.

It was obviously a dumb time to invest in energy, right? Wrong! It was exactly the right time to invest in energy companies. It seems to be a well-kept secret, but energy was the top-performing S&P 500 sector in 2016:

Source: Select Sector SPDRs using data from Bloomberg

Now here we are a year later with oil trading above $50/bbl, and natural gas $1 higher than it was a year ago. Yet going into this week, the 5% year-to-date decline of the Energy Select Sector SPDR (XLE) made energy the worst S&P 500 sector since Jan. 1.

This is the sort of pullback that provides an opportunity. Natural gas inventories are 10% below the levels of a year ago, despite another mild winter. The outlook for oil is at least moderately bullish, with Saudi Arabia reportedly targeting $60/bbl for its crude. Historically, the Saudis usually get what they want in the oil market, and that is going to benefit some of our favorite oil producers.

Who are those? I am glad you asked. Again, a year ago this week we were advising investors to hang in there with EOG Resources (NYSE: EOG), one of our Growth Portfolio holdings in The Energy Strategist:

"EOG is probably the most efficiently-run shale oil company, but even it can't escape the wrath of $30/bbl oil. The good news is that it still has a strong balance sheet, with a net debt-to-total capitalization ratio of 31%. Expect the balance sheet to weaken this year, but keep in mind that EOG is in far better shape than most of its shale oil competitors. The company will survive until oil prices recover, and that will be the cure to its current ills."

EOG's stock has climbed about 50% since then, and the company remains at the top of the heap among shale oil producers. It proved that again this week by beating analysts' earnings expectations and showing an increase in annual free cash flow (FCF) for the fifth straight year. Strong FCF in the face of $50 oil is the sign a well-managed company, and EOG remains a favorite here. In fact, only two other stocks in our portfolios have produced better returns than EOG since we initially recommended them.

Author's note: EOG is a favorite, but it's not our #1 pick. To see all of our top recommendations, consider trying The Energy Strategist risk-free for 60 days.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Investing Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.

Econintersect Investing

Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government

 navigate econintersect .com


Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2018 Econintersect LLC - all rights reserved