Since our previous issue of Energy and Income Advisor, oil prices have ticked back over $50 a barrel. And the combination of last year’s literal industry-wide investment freeze with energy demand rising faster than expected means they’ll stay there in 2021, with a possible run into the 60s at some point.
How much of what we’ve already seen for energy prices is priced into sector stocks? The last time oil was firmly over $50, back in February 2020, Enterprise Products Partners (NYSE: EPD) traded roughly one-third higher than it does now. The same was true for fellow Model Portfolio holding ExxonMobil (NYSE: XOM).
So was high quality midstream Magellan Midstream Partners (NYSE: MMP). So were leading oilfield services company Schlumberger Ltd (NYSE: SLB) and Concho Resources (NYSE: CXO), which fetched what’s since become a high premium takeover bid from ConocoPhillips (NYSE: COP).
Conservatively positioned midstream companies MPLX LP (NYSE: MPLX), Hess Midstream (NYSE: HESM) and Williams Companies (NYSE: WMB) have rewarded investors by roughly returning to their levels of early 2020. But despite more than doubling off early November lows, shares of Occidental Petroleum (NYSE: OXY) would still need yet another double to do the same.
All of these stocks are, of course, much further below where they stood back in summer 2014, when oil prices were still over $100 a barrel. But the discounts we continue to see to early 2020 prices—despite solid performance of these companies amidst the global pandemic over the past year—is a clear sign that even a slightly positive shift in investment sentiment will bring big returns from current prices.
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In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.
Elliott and Roger on May. 25, 2022
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