Monday, December 29, 2014
Stocks are expected to start today’s session on the weak side, but they have been on a tear lately and that broader trend likely wouldn’t change in these final sessions of the year. The modest bump in the Energy sector’s picture as a result of developments in Libya may not have much staying power. But the sector does offer attractive investment opportunities for the New Year.
Energy stocks in the S&P 500 are down more than 15% since mid-October while the index itself has gained more than 3% in that same time period. The sector has been the worst performer this year, with energy stocks in the S&P 500 down -14.2% in the year-to-date period vs. the +14.2% gain for the index as a whole in that same time period.
The pain within the energy sector is broad-based, but particularly pronounced for the oilfield services industry, followed by the exploration and production industry. Stocks in the large-cap integrated industry have held up relatively better, but even they are down quite a bit, with Exxon (XOM) down more than -7% and Chevron (CVX) down more than -9% year to date.
With the broad stock market indexes in record territory, it’s not easy to find ‘value’ in the market at current levels. Of course, not all industries performed as well in 2014 as the S&P 500 index as a whole. As such, a good starting point to look for ‘values’ could be the list of 2014 laggard industries. And of these, the energy sector has got to be on top of the list.
Folks with longer time horizons, next 3 to 5 years, will do very well by building exposure to the sector, particularly in the E&P and integrateds space, in my view. A number of other international centric cyclical industries did not better than the oil industry in 2014, but they likely need to stay in the dog house a bit longer.
Sheraz Mian
Director of Research
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