US Energy Shares Outperform As Companies Begin To Report



US Energy Shares Outperform As Companies Begin To Report
After losing ground and underperforming the broad market in 2017, US energy shares are climbing fast.

Reuters

NEW YORK, April 25 (Reuters) - After losing ground and underperforming the broad market in 2017, U.S. energy shares are climbing fast with oil prices and gaining attention from investors who think the trend may hold.

Oil prices are near their highest since late 2014 thanks to strong demand and supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia. This will support energy earnings growth, investors and strategists say, particularly for companies involved in exploration and production.

Forecasters expected first-quarter earnings for the sector would be up about 69 percent from a year ago, the highest percentage gain of any S&P 500 sector, according to Thomson Reuters data. The exploration and production group was projected to have the biggest year-over-year increase.

Energy stocks in the S&P 500 are up 7.5 percent since the start of April, compared with a 0.4 percent decline in the overall S&P 500.

Results from energy companies this earnings season could put recent share gains to the test. The big integrated names, Exxon Mobil and Chevron are due to report results Friday, while ConocoPhillips is due Thursday along with and refiner Valero Energy. Results from Apache, more focused on exploration and production, are due next week.

Energy shares in general have not caught up with rising oil prices. U.S. West Texas Intermediate crude futures were trading around $68 a barrel, up about 4 percent for the month so far and roughly 12 percent year to date.

"The stock prices are still not reflecting the earnings power that's likely to show up here in this quarter and for the year as a whole," said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, which has been overweight the energy sector.

"Energy prices are more than likely to stabilize here between the $60 and $70 range as opposed to the prior range of $50 to $60."

The S&P energy index, despite its recent sharp gains, is up just 0.5 percent since Dec. 31.

In 2017, the energy index declined 3.8 percent versus a 19.4 percent gain in the S&P 500.

Other investors are recommending ways to bet on energy.

At the Sohn Investment Conference in New York this week, billionaire investor Jeffrey Gundlach said investors should consider a trade that includes betting on gains in an exchange-traded fund that tracks oil and gas explorers and producers who could benefit from rising inflation.

To be sure, oil prices can be volatile, and prices have risen enough to worry some government and business leaders that energy costs could crimp economic growth. U.S. President Donald Trump on Friday said OPEC had sent prices to levels that were "artificially Very High!" This led to a brief dip in oil prices.

Also, the jump in energy shares has driven up the sector's valuations, though some strategists say levels are not worrisome yet.


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