Time to Get Greedy in Energy Stocks?

Energy stocks—Gas station fuel pistols
  • Energy stocks almost hit new lows in the second coronavirus-wave. 
  • That’s the most hated industry, near one-year, five-years, many-years lows. 
  • Heaven for contrarian investors, or a sucker’s bet?
  • Comparable with the coal miners and tobacco manufacturers?

Energy, oil stocks, barrels

No Hope for Energy Companies?

Are traditional energy stocks, oil companies a good buying target?—ask many investors. The energy sector is the most hated investment today. Far the worst in the group of the 11 main industries in the main American S&P 500 index. (See S&P 500 Sector Performance in 2020–The 11 Riders of the Cataclysm.) The Energy Select Sector SPDR Fund (XLE) fell approximately 50 percent this year, US crude oil (WTI) 33, Brent crude, 35 percent. The ETF of global energy stocks, FILL was also 45 percent lower.

Chart 1: Brent Crude Futures Price /BB/ and 3 Energy Stock ETFs, YTD. (iShares MSCI Global Energy Producers /FILL/, SPDR S&P Oil & Gas Exploration & Production ETF /XOP/, Energy Select Sector SPDR Fund /XLE/) (Tradingview.com)

But if stocks fall, that doesn’t mean they are cheap. They can be still overvalued, or their outlook may be very dark. Think about disrupted, disappeared sectors, and professions. Like vinyl record producers, steam engines, horseshoe blacksmiths, ship carpenters. The oil sector is suffering since at least 2014. Since the big fall of crude, from prices well above a hundred dollars to prices well below a hundred dollars.

Chart 2: Brent Crude Futures Price /BB/ and 3 Energy Stock ETFs, 5 Years.
Chart 2: Brent Crude Futures Price /BB/ and 3 Energy Stock ETFs, 5 Years. (iShares MSCI Global Energy Producers /FILL/, SPDR S&P Oil & Gas Exploration & Production ETF /XOP/, Energy Select Sector SPDR Fund /XLE/) (Tradingview.com)

Basic overproduction developed in the crude market in the last years. Followed by other bad news reducing demand. Like the growing popularity of energy-saving cars, electric vehicles, the coronavirus pandemic and restrictions, the spread of home offices. Also, natural gas prices are low in the last years, another important income source for many energy companies. Even the plane manufacturers want to be emission-free. For example, Airbus will experiment with hydrogen-based energy cells and plans to produce hydrogen-fueled aircraft from 2035.

Energy Stocks for Contrarian Investors

There is not much light at the end of the tunnel yet, although an effective vaccination can make a big difference in a few months. But that is the point. For contrarian investors, this may be a big moment. The lifetime opportunity. The time when all the bad news has been built into the prices. When everyone has sold already, or have forgotten this investment. Then it can easily be big bounces in the short run.

But not only the “dead cat bounce” style ones. In the long run, oil and natural gas may be needed for decades more to come. That means significant revenues to at least the more efficient oil producers. Crude exploration and industry investments have been lacking since 2015 for the sharp fall in prices. Even crude shortages may happen in the coming years. Some oil companies are shifting slowly to renewables. Because energy will be needed.

Coal or Tobacco?

In the very long term, however, the oil companies, which cannot restructure their activities, may end like the coal miners. The third chart shows two coal miner ETFs. The one fell 80 percent, the other 98 percent in the last 12-13 years.

But the ones capable to adapt may maintain activities profitable. For example, we see some similar survivors in the tobacco industry (like Philip Morris).

Chart 3: Two Coal Sector ETFs.
Chart 3: Two Coal Sector ETFs. Dow Jones Coal (DJUSCL), VanEck Vectors Coal ETF (KOL). (Tradingview.com)

The Death of Oil? 7 Pros and Cons of Energy Stocks

Interesting readings from other sites, with many arguments for and against the energy stocks and traditional energy sector.

Energy Sector is Alive-Gas Station Pistol


Death Notices of Energy Stocks Overdone 

The feared demise of oil as a primary energy source seems a bit overdone. Demand will snap back after COVID-19. It already appears to have done this in China, the world’s biggest crude importer.

(SeekingAlpha, Bill Kort)

Energy Stocks-Oil Barrels


Point/Counterpoint: The Case for Exxon

The industry may well be in structural decline, but it’s still very possible to make healthy profits along the way. Ask the tobacco giants. The stock is already trading on the expected future dividend ratio, not the current one. +++ Oil is dead for any truly forward-looking investor. Even OPEC expects it to peak within the next 10 years, before starting entering structural decline. There is nothing reliable about Exxon’s future returns to shareholders.


Expensive for Energy Companies-Offshore Platform


“Don’t Fall for This Suckers’ Bet”

Investor demand for XLE recently hit record levels. That’s not what we want to see as contrarian investors. History tells us this is a sector to avoid for now.

(Stansberry Research)

Crude Oil Well and Pump



Time to Get Greedy in the Energy Sector

The contrarian case for buying energy stocks just keeps getting stronger and stronger.


Dividend Yields Are High, May Reach Two-Digit Percentages P. A.


Energy Stock Dividend Heaven?

Industry stalwarts Exxon Mobil and Chevron are still yielding 10% and 7% in dividends. If they cut their dividends—let’s say they even cut it by half—that still makes it a very attractive yield.


The Elections May Have an Impact on Energy Stocks



Biden or Trump?

Investors are wary of the impact a Joe Biden election victory might have on the oil and gas sector. Despite energy stocks performing better under previous Democratic administrations than they have under Donald Trump.

(Financial Times.)

Solar Power, Renewable Energy


Renewable-Energy Stocks are Getting a Biden Bump

Funds that are seen benefiting from the candidate’s policies have surged over 80% this year.

(The Wall Street Journal.)




I’m not a certified financial advisor nor a certified financial analyst, accountant nor lawyer. The contents on my site and in my posts are for informational and entertainment purposes and reflecting my collection of data, ideas, opinions. Please, make your proper research or consult your advisors before making any investment or financial or legal decisions.

I have open positions in silver (long), platinum (long), gold miner stocks (long), uranium miner stocks (long), different cryptocurrencies (long), S&P 500 index (short), big global energy companies (long) and Brent crude oil (short) at the time of writing.

(Photos:  Pixabay.com.)

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