Oil stocks are showing a unique relationship with crude oil prices OilPrice.com

Although oil prices have fallen sharply since the last OPEC meeting, oil stocks continue to be disconnected from the production they track. In the past two months, the leading gauge of the energy sector, the Energy Select Sector SPDR Fund (NYSEARCA: XLE ), rose 34 percent, while the average crude price fell 18 percent. XLE now returns 61.2% year-to-date, the best of any US market sector. According to Bespoke Investment Group via The Wall Street Journal; current division For the first time since 2006, the oil and gas sector traded within 3% of its 52-week high and WTI prices retreated more than 25% from their 52-week high. This is only the fifth such difference since 1990.

US oil majors have not given up either: in the past two months, Exxon Mobil Corp. (NYSE: XOM ) gained 35.3%; Chevron Corp. (NYSE: CVX ) rose 30.6%; Conoco Phillips (NYSE: COP ) rose 30.1%, while Phillips 66 (NYSE: PSX ) rose 45.3%. Marathon Petroleum Corporation (NYSE: MPC ) returned 40.3 percent. This trend holds true even in the short term.

There is a method to the madness, though.

Source: Wall Street Journal

Strong earnings

Energy companies’ strong earnings are a big reason why investors still flock to oil stocks.

Third quarter earnings season is nearly over, but so far it’s shaping up to be better than feared. according to FactSet Income InsightsFor Q3 2022, 94% of S&P 500 companies reported Q3 2022 earnings, of which 69% reported a positive EPS surprise and 71% reported a positive earnings surprise.

Related: Saudi Arabia and Iraq Reiterate Their Support for Production Cuts

The energy sector recorded the highest revenue growth among the eleven sectors at 137.3 percent and an average growth of 2.2 percent. S&P 500 At the sub-industry level, all five of the sector’s sub-industries showed year-over-year revenue growth: Oil & Gas Refining & Marketing (302%), Integrated Oil & Gas (138%), Oil & Gas Exploration & Production (107%), Oil & Gas Equipment & Services (91%), and oil and gas storage and transportation (21%).. Energy is the sector where most companies beat Wall Street estimates by 81 percent. Marathon Petroleum ($47.2 billion vs. $35.8 billion), ExxonMobil ($112.1 billion vs. $104.6 billion), Chevron ($66.6 billion vs. $57.4 billion), Valero Energy ($42.3 billion vs. $40.1 billion), and a report Positive earnings surprises contributed significantly to the increase in the index’s earnings growth rate for the Phillips 66 ($43.4 billion vs. $39.3 billion) since September 30.

At best, the outlook for the energy sector remains bright. As stated recently Moody’s Research ReportIn 2023, industry revenues will generally stabilize, although they will come in slightly below the levels reached recently.

The analysts Although commodity prices have declined from their peak in 2022, price cycles are forecast to remain strong through 2023. . Moody’s estimates that US energy sector EBITDA will peak at $623B in 2022, but decline to $585B in 2023.

Analysts say lower capex, uncertainty about future supply expansion and a higher geopolitical risk premium, however, will continue to be supported by higher oil prices. Meanwhile, US LNG will continue to be supported by strong export demand High natural gas prices.

In other words, there are no better places for investors in the US stock market to park their money if they are looking for serious income growth.. Furthermore, the outlook for the sector remains bright.

Although oil and gas prices have fallen off recent highs, they are much higher than they have been in the past two years, so the bullishness in energy markets continues. Indeed, the energy sector remains a big Wall Street favorite, with the Zacks Oil & Energy sector being the highest-ranked sector of all 16 Zacks-Rated sectors.

Share shopping answers

Additionally, the sector’s earnings are likely to be higher due to higher share buybacks. Oil and gas supermajors are poised to buy their shares at record highs this year as rising oil and gas prices help deliver higher profits and boost returns for investors.

The seven supermajors are poised to return $38 billion to shareholders through buyback programs this year, according to data from Bernstein Research, with investment bank RBC Capital Markets putting the total at $41 billion.

In the year In 2014, when oil traded above $100 a barrel, we saw $21 billion in returns. This year’s figure easily exceeds the 2008 figure.

But here’s another interesting fact: Big Oil’s capex and production remained largely flat despite the report Record second quarter profit.

Data from the US Energy Information Administration (EIA) showed that Big Oil companies largely cut capital spending and production for the second quarter. EIA’s assessment of 53 public gas and oil companies responsible for 34% of GDP showed a 5% drop in capital expenditures in the second quarter of this year from Q1.

Cheap energy stocks

Another surprising discovery: despite the high energy reserves, it is cheap. Not only is the sector widely outperformed, companies in this sector remain relatively cheap, undervalued and have above-average projected earnings growth.

Image source: Zacks Investment Research

They include some of the cheapest oil and gas stocks at the moment Ovintive Inc. (NYSE: OVV ) with a PE ratio of 6.09; Civitas Resources, Inc. (NYSE: CIVI ) with a PE ratio of 4.87; Enerplus Corporation (NYSE: ERF )(TSX: ERF ) PE ratio of 5.80; Occidental Petroleum Corporation (NYSE: Oxy) while PE ratio is 7.09 Canadian Natural Resources Limited (NYSE: CNQ ) has a PE ratio of 6.79.

By Alex Kimani for Oilprice.com

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