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 is still a bullpen because there is a shortage of supply.
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.
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 crude prices to increase. You 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 bets 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 Navellier & 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 has been finding profitable companies and buying them when they’re extremely cheap,” he said. “And I think that’s going to increase interest rates for that area.”
Could new iPhones give Apple stock a boost?
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 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.
Next
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
