The U.S. may be closing in on the title of world’s largest oil producer, but shares in the nation’s energy stocks have seen little benefit.
From Exxon Mobil to Newfield Exploration and Marathon Oil, America’s biggest energy producers have languished on the stock market. The group is the only one in the S&P 500 that’s had a negative return over the past three years — and not by a whisker. It’s off nearly 10 percent, compared with technology’s gain of 74 percent and a rise of 50 percent for financials.
Anything energy-related “has just been terrible” over that time period, said Brian Barish, chief investment officer at Cambiar Investors in Denver, whose firm owns some stocks in the sector. “It’s been tough.”
But there are reasons to hope for a turnaround.
For one, while oil prices are well off their 2013-2014 peak above $100, the commodity has recently been outperforming the shares, fueling speculation there’s room for a catch-up.
The lag in share performance and a corporate focus on cost reduction also make companies in the sector attractive investments, Morgan Stanley strategist Andrew Sheets said in an interview last month in London.
He isn’t alone.
“I like energy stocks. They are out of favor, very underowned, offer a premium dividend yield and better relative value. They should be outperformers if inflation fears continue to intensify and they have done well historically during periods of rising yields,” said Jim Paulsen, chief investment strategist at Leuthold Weeden Capital Management, in an interview Tuesday. “Improved U.S. and global synchronized growth should also keep energy demands firmer than earlier in this recovery.”
Further, as the economic cycle matures, the chances the group will finally break out should improve, Sheets said. Energy has “historically been a very consistent late-cycle outperformer,” he said.