Some experts think that the energy stock boom is still in its early stages, despite the big move this year.
“The oil sector has long structural tailwinds behind it,” said Matt Cole, head of product and investments for Strive Asset Management. “There is a supply shortage, so there is still a bull case.”
Cole isn’t too concerned about the recent pullback in energy prices. He said that as long as oil costs remain elevated, energy companies should mint money.
In other words, oil prices should stay stable. This may not be a repeat of 2008, when crude prices plunged during the depths of the Great Recession/Global Financial Crisis.
“You don’t need crude prices to go up. They just need to stay sustained at a relatively high level and energy companies will be massively profitable,” Cole said.
To that end, analysts are currently forecasting that Exxon Mobil will post an 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 more than double, to $36.2 billion.
“Energy stocks remain the best bet because as long as oil prices stay above $80 a barrel, they’re going to continue to have record sales and earnings,” said Louis Navellier, chairman of Navellier & Associates, in a report. He also noted that the stocks are trading at fairly low valuations based on earnings estimates and also pay big dividends.
Exxon, for example, trades for less than eight times 2022 earnings forecasts, a huge discount to the broader market. The S&P 500 is valued at about 19 times this year’s profit projections. Exxon also pays a dividend that yields nearly 3.8%, compared to a yield of around 3.2% for a US 10-year Treasury bond.
Cole also said that investors should definitely be paying attention to the fact that Buffett has made a big bet on oil stocks lately.
“Buffett’s legacy has been finding profitable companies and buying them when they are extremely cheap,” he said. “And I think this is the environment for that with rising interest rates.”
Could new iPhones give Apple stock a boost?
Buffett is also a big fan of Apple. Berkshire owns a more than 5.5% stake in the company, which makes it the second largest holder of the iPhone maker, trailing only mutual fund giant Vanguard.
Apple’s stock tends to be volatile on the day of product announcements, often falling after the news finally comes out. But make no mistake. Investors are eager to see a fresh new lineup of phones since that should boost earnings and sales for the company.
The iPhone 14 launch could also lead to a further lift for Apple’s lucrative services division, which includes subscriptions for things like Apple Music, iCloud and Apple TV+. Services revenue made up nearly 25% of Apple’s overall sales in its latest quarter.
Monday: US stock market closed for Labor Day; OPEC+ meeting; new UK Prime Minister to be named
Tuesday: US ISM services index