A year ago, we reasoned that energy stocks could outperform the broader stock market despite our projections for weak oil prices in the first half of the year. Our thesis hinged on our view that oil prices would average about $50 per barrel in 2017 and that many US shale players, especially early entrants in the Permian Basin and central Oklahoma’s STACK play, could earn strong returns on capital in this environment.
Although we were consistently negative on some large-cap master limited partnerships (MLP) last year—including Energy Transfer Partners LP (NYSE: ETP) and Plains All-American Pipeline LP (NYSE: PAA)—we expected select midstream operators to fare well in 2017. Our preferred names offered exposure to the Permian Basin and other areas where temporary dips in oil prices wouldn’t affect activity levels.
This bullish outlook proved to be our biggest miss a year ago: Energy was the second worst-performing sector in the S&P 500, and the Alerian MLP Index gave up 6.5 percent of its value. Few energy stocks avoided the carnage that engulfed the sector over the first eight months of 2017. Even high-quality upstream and midstream names like Concho Resources (NYSE: CXO), EOG Resources (NYSE: EOG) and Enterprise Products Partners LP (NYSE: EPD) found themselves caught up in the bloodbath.
However, it’s always darkest just before the dawn. We thought that this indiscriminate selloff resembled the classic, panic-driven plunges that tend to occur toward the end of the bear market and positioned the Focus List accordingly. Energy stocks have outperformed in the new year, but we remain bullish on the sector for four reasons.
Your complete guide to energy investing, from growth stocks to high-yielders.
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 Jul. 27, 2022