Two decades ago, financial markets bifurcated the world into new and old economies. Oil companies fell into the latter hemisphere. Back then, big, stodgy crude producers spent only the cash flow they had available, unlike modern internet sensations such as Amazon. Then, as now, energy stocks trailed the broader indices. That trend should reverse.
Usually, oil company shares beat the broader market when the underlying commodity rallies. This week, the Brent oil spot price breached $60 per barrel, its highest level since July 2015. However, the MSCI World Energy index price relative to the World index sits near 17-year lows, when tech last peaked. This disparity in the performance of stocks and the commodity has occurred a couple times since the late 1990s. It has never persisted for long.
True, the tech FAANGs — Facebook, Apple, Amazon, Netflix and Google — deliver higher returns on their capital than, say, BP or Statoil. And the oil majors, never mind independent explorers such as Tullow and Anadarko Petroleum, can barely cover their capital investment needs and dividend promises.
Yet a tightening supply of crude, as inventories fall and demand stays steady, should support oil prices. In turn, that should lift operating cash flows. That means Royal Dutch Shell, Total and ExxonMobil should have better backing for dividend yields as high as 6 per cent.
The underperformance of oil stocks creates opportunity. Making a buck never goes out of style.
Has the new economy won out? Should oil company shares continue to trail the broader market indices? Please tell us what you think in the comments section below.
http://ift.tt/2zb2S78
Tidak ada komentar:
Posting Komentar