JPMorgan is bullish on the energy sector.
In a note to clients, Dubravko Lakos-Bujas, the bank’s chief U.S. equity strategist, likened the bright outlook on energy stocks to a few factors.
“We believe favorable technicals, improving fundamentals with [a] stabilizing business cycle, and ongoing geopolitical tensions in the Middle East could help redirect flows into this universally hated and cheap sector,” he wrote.
Energy stocks in the S&P 500 (^GSPC) have actually risen so far in 2019, with a 5.4% gain, but that trails most of the other sectors in the benchmark index. The S&P 500 is up just over 19% year-to-date. The energy sector’s performance over the past year-over-year is more glaring, with a 21% decline.
Prices for West Texas Intermediate, (CL=F) the U.S. benchmark for crude, currently stand at roughly $56 a barrel, a rise of 14.7% so far this year, but a decline of 18.7% year-over-year. On Sept. 16, oil prices surged some 15%, reaching as high as roughly $63 a barrel after air strikes in Saudi Arabia disrupted production. The one-day surge was short-lived.
“Absolute and relative valuations are at lows with small-cap E&Ps [exploration & production] trading below book value and at price levels seen almost 25 years ago,” be wrote. “In contrast, corporate sentiment is bullish with insider purchases rising to cycle highs and shareholder return at ~6% with stronger buyback announcements and higher dividends.”
Lakos-Bujas also sees 2020 benefits to the sector from increased central bank stimulus and hopes of thawing U.S.-China trade relations.
Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.
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