Investors still don’t believe that higher oil and natural gas prices are sustainable, and they have yet to appreciate the enormous shift in wealth currently flowing in the energy sector, according to Raymond James’ Stat of the Week. However, over the next decade, analysts are forecasting a long-term sector rotation into energy stocks, because the fundamentals are “very bullish” relative to the overall market.
Energy weightings are likely to move upward in the coming years because investors are “grossly underweight” in the stocks. “Unfortunately, many investors have very short-term memories,” analysts noted. “To many of these shorter-term investors, energy stocks currently appear overweight relative to recent history.” However, “we think that this market perception is wrong,” and “we are convinced that energy weightings will continue to move upward over the next five to 10 years.”
Raymond James’ analysts said that companies used to be valued-based on their ability to generate earnings and/or cash flows. “Apparently, that doesn’t seem to matter anymore to today’s energy investors,” because the Standard & Poor’s (S&P) Energy Sector “has accounted for about 20% of the S&P 500’s earnings over the past decade, while capturing only about 7% of the market weighting.” Under the S&P metric, analysts said that energy stocks actually should have been valued 200% higher (or the rest of the market 200% lower) over the past decade.
In 1Q2004, S&P’s Energy Sector, which is comprised of 27 companies, represented about one-third of all S&P 500 profits, but captured only 7% of the overall market weighting. “Over the next couple of years, we expect that energy earnings could easily grow to 40% of overall S&P 500 earnings. Given this robust outlook, we have a hard time believing that the market will only credit the energy sector with a 7% market capitalization weighting.”
©Copyright 2004 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |