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CNN Business
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Move over, Big Tech: Oil may be the new FAANG.
Energy stocks fell last week as oil prices fell. But so far, crude prices are set to rise nearly 20% through 2022, making the sector one of the few bright spots in the market this year. (Indeed, the Fang ticker Diamondback Energy ( FANG ) oil stocks are up 25 percent.
Two top energy sector exchange-traded funds, the Energy Select Sector SPDR Fund ( XLE ) and the iShares US Energy ETF ( IYE ) each rose more than 45 percent.
Occidental Petroleum ( OXY ), which is backed by Warren Buffett’s Berkshire Hathaway ( BRKB ), is up nearly 140% this year. That makes it the best performer in the S&P 500. (Berkshire currently owns 20% of Occidental, and US federal regulators recently approved Berkshire’s bid to take a 50% stake.)
Berkshire is a big investor in Chevron (CVX), which is up more than 30% this year and is the top stock in the Dow. And the top ten S&P 500 stocks are in the oil patch, including Hess ( HES ), Exxon Mobi ( XOM ) l and ConocoPhillips ( COP ).
Meanwhile, Facebook’s parent meta platforms, Apple ( AAPL ), Amazon ( AMZN ), Netflix ( NFLX ), and Google owner Alphabet ( GOOGL ) are all down significantly.
Texans are not the only part of the market that is shaking. Most major stocks are in the red this year. So are meme stocks like AMC ( AMC ) , Bed Bath & Beyond ( BBBY ) and GameStop ( GME ) . Bitcoin and other cryptocurrencies also fell. That’s why the performance of fuel stocks really stands out.
Some experts think that despite the great activity this year, the increase in energy reserves is still in its early stages.
“The oil sector has a long structural headwind behind it,” said Matt Cole, head of products and investments at Strive Asset Management. “There’s a shortage of supply, so there’s still a bullpen.”
Strive has a new US energy ETF with the ticker symbol DRLL. The fund is privately managed and tracks an index of high oil stocks. Exxon Mobil, Chevron and ConocoPhillips are the largest holdings.
Cole isn’t too concerned about the recent pullback in energy prices. As long as the cost of oil remains high, energy companies will have to spend money, he said.
Monday’s big OPEC+ meeting could boost crude prices. There is speculation that oil producing countries may reduce crude production.
Cole isn’t worried, saying the recent weakness in oil prices is a sign of weak demand. Price volatility may be greater due to a stronger dollar, which typically lowers commodity prices. Fears of an imminent recession in the U.S. are beginning to ease somewhat, thanks to a still resilient labor market and inflationary pressures leveling off.
In other words, the price of oil should be stable. This may not be a repeat of 2008 when crude prices plummeted during the Great Recession/Global Financial Crisis.
“You don’t need a raw price to add. They just need to stay relatively high and energy companies will be highly profitable,” Cole said.
To that end, analysts are currently forecasting ExxonMobil to post annual profits of around $53 billion by 2022. This is more than double last year’s revenue. Chevron’s net income is expected to more than double to $36.2 billion.
“Energy stocks remain the best bet because they will continue to post record sales and earnings as long as oil prices stay above $80 a barrel,” said Louis Navellier, chairman of Navillier & Associates, in a report. He also pointed out that the shares are trading at a relatively low price based on earnings estimates and that they pay high dividends.
Exxon, for example, trades at less than eight times forecast 2022 earnings, a huge discount to the broader market. The S&P 500 is trading at about 19 times this year’s earnings forecasts. Exxon also pays a dividend yield of about 3.8%, compared to the 3.2% yield on the US 10-year Treasury bond.
Cole also said investors should definitely take note of Buffett’s recent big bets on oil stocks.
“Buffett’s legacy was finding profitable companies and buying them when they were extremely cheap,” he said. “And I think the environment for that is that interest rates are going up.”
Buffett is a big fan of Apple. Berkshire owns more than 5.5% of the company, making it the iPhone maker’s second-largest shareholder, trailing only mutual fund giant Vanguard.
Apple stock, like other tech stocks, has declined this year. But shares are only down about 10%. This is a smaller decline than the other FAANGs. Apple didn’t fall as much as the Dow, S&P 500 and Nasdaq.
And there may be more good news on the horizon for Apple. The company is hosting an event on Wednesday and is expected to unveil the new iPhone 14.
Apple stock tends to be volatile on product announcement days, often falling after the news. But make no mistake. Investors are eager to see the new lineup of phones as it could boost revenue and sales for the company.
The launch of the iPhone 14 could also lead to additional pickups, including in Apple’s lucrative services division. Subscriptions to things like Apple Music, iCloud, and Apple TV+. Service revenue accounted for 25 percent of Apple’s total sales in the latest quarter.
Monday: US stock market closed for Labor Day; OPEC+ meeting; The new UK Prime Minister is about to be appointed.
Tuesday: US ISM Services Index
Wednesday: The Apple Event; America’s trade balance; US Beige Book; China Business Information; Revenue from NIO and GameStop
Thursday: Federation Chairman Jerome Powell speaks at the Cato Institute; US weekly jobless claims; ECB rate decision; Japan’s GDP: Earnings from RH (RH) and DocuSign (DOCU).
Friday: China’s inflation; EU Energy Crisis Summit; Earnings from Kroger (KR).
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