Some experts believe the energy stock boom is still in its early stages, despite the big move this year.
“The oil sector has a long structural wind behind it,” said Matt Cole, head of products and investments at Strive Asset Management. “There is a shortage of supply, so there is still an upside.”
Cole isn’t too concerned about the recent dip in energy prices. As long as oil costs remain high, he said, energy companies should mint money.
In other words, oil prices must remain stable. This may not be a repeat of 2008, when crude oil prices fell during the depths of the Great Recession/global financial crisis.
“I don’t need crude oil prices to go up. They just need to stay sustainable at a relatively high level and the energy companies will make huge profits,” Cole said.
To that end, analysts currently expect Exxon Mobil to post annual profit of nearly $53 billion for 2022. That’s more than double last year’s earnings. Chevron’s net income is also expected to double to $36.2 billion.
“Energy stocks remain the best bet because as long as oil prices stay above $80 a barrel, they will continue to generate record sales and profits,” Louis Navellier, Chairman of Navellier & Associates, said in a report. He also noted that stocks are trading at fairly low valuations based on earnings estimates and also a big dividend payout.
Exxon, for example, is trading at less than eight times its 2022 earnings forecast, a huge discount to the broader market. The S&P 500 is valued at about 19 times this year’s earnings forecast. Exxon also pays a dividend of about 3.8%, compared to a yield of about 3.2% for a 10-year US Treasury bond.
Cole also said that investors should definitely pay attention to the fact that Buffett has bet heavily on oil stocks lately.
“Buffett’s legacy is to find profitable companies and buy them when they are very cheap,” he said. “And I think that’s the environment for that with higher interest rates.”
Could the new iPhones give a boost to Apple’s stock?
Buffett is also a big fan of Apple. Berkshire owns more than 5.5% of the stock in the company, making it the second-largest owner of the iPhone, after mutual fund giant Vanguard.
Apple stock tends to be volatile on the day of product announcements, and often drops after the news finally comes out. But make no mistake. Investors are eager to see a new batch of phones because that would boost profits and sales for the company.
The launch of the iPhone 14 could also lead to a further increase in Apple’s profitable services division, which includes Subscriptions to things like Apple Music, iCloud, and Apple TV+. Services revenue made up nearly 25% of Apple’s total sales in its most recent quarter.
Monday: US stock market closed for Labor Day; OPEC+ meeting appoints new UK Prime Minister
Tuesday: American ISM Services Index