Investors continued to steer clear of the Energy sector as companies in the space have been persistently displaying poor performance. However, there has been a transition in the sector with many institutional investors agreeing that the space is getting lucrative again.
Energy Sector Underperforms S&P 500
Over the past five years, the Zacks Oil - Energy sector has significantly underperformed the S&P 500 index. The sector has declined 8.2% over the period, against the index’s 83.4% gain. In fact, investors are refraining from investing in the sector as there has been considerable volatility in commodity prices, unimpressive returns from companies as well a supply glut in the market — as revealed by institutional and private equity investors interviewed by IHS Markit.
In terms of market cap weightage in the S&P 500 index, the Energy sector has shrunk to 5% in 2019 from 15% in 1990, per CNBC. The fall came despite a boom in U.S. shale oil and natural gas production, which backed the United States’ energy independence.
Things Are Looking Up
Although the Energy sector has been losing investor faith, majority of the respondents interviewed by IHS Markit believe that the space has every potential to become a lucrative investment area again. This is because explorers are chalking out conservative capital budgets since they are focusing more on investors’ returns rather than production.
Eventually, shale oil and gas production growth is set to decelerate which along with deepening cuts by OPEC will take care of the supply glut. Moreover, the phase-one trade deal between the United States and China is likely to drive global energy demand.
Stocks to Make Merry
With things looking up for the Energy sector, majority of the institutional and private equity investors believe the space is undervalued. Since it would be ideal for traders to seek undervalued energy stocks, we have used the Zacks Stock Screener to narrow down on stocks with solid prospects, sporting a Zacks Rank #1 (Strong Buy) or 2 (Buy) along with Value Score of B.
Headquartered in Irving, TX, Pioneer Natural Resources Company PXD is a pure-play producer in the Permian basin — the most prolific oil resource in the United States. In the Midland basin, it has the largest acreage position with operations across 750,000 gross acres. You can see the complete list of today’s Zacks #1 Rank stocks here.
In 2020, the #2 Ranked stock is likely to see earnings growth of 18.2%.
Chevron Corporation CVX, headquartered in San Ramon, CA, is among the largest integrated energy companies in the world.
In 2020, the Zacks Rank #2 stock is likely to see earnings growth almost 6%.
Headquartered in Houston, TX, Talos Energy TALO is a leading offshore explorer with strong focus in the U.S. Gulf of Mexico. In 2020, the stock with a Zacks Rank of 1 is likely to see earnings growth of almost 14%.
Murphy Oil Corporation MUR, headquartered in El Dorado, AR, is a leading explorer and producer, with focus on onshore North American resources and offshore Gulf of Mexico. In 2020, the stock with a Zacks Rank of 1 is likely to see earnings growth almost 12%.
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Chevron Corporation (CVX) : Free Stock Analysis Report
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