Energy stocks are off significantly over the past several months. They range from down 10-20% for majors up to 50% for small caps. The “super-majors” – Exxon (XOM), Chevron (CVX) and Shell (RDS.A) have fared somewhat better, declining in the teens. I thought the following chart from Richard Zeits over at Seeking Alpha.
I very much like how Joshua Kennon puts it in this post.
“A portfolio of energy assets is fundamentally different in nature than almost any other security, business, or holding. The economic characteristics are often detached from what is happening on Wall Street (look at the boom cycles in finance and those in oil – they do not always line up nicely; it’s entirely possible while stock brokers are jumping out of metaphorical windows, Texas wildcatters are building new ranches and buying new planes). I like the balance that such a collection of holdings could bring to the estate.”
I won’t make my analysis too complicated. Oil and gas companies are not going anywhere in our lifetimes. The majors are all still in growing (albeit slowly). This sell-off creates a fantastic buying opportunity of high quality assets, pristine balance sheets, strong production profiles and cash flow.
If you’re brave and have the time, I believe the small-cap and mid-cap space can yield incredible returns but I haven’t had the time to dig for those yet.
For the large caps lets just take a look at a couple of key stats:
- Exxon – P/E – 11 Dividend Yield – 3.03%
- Chevron – P/E – 11.8 Dividend Yield – 3.83%
- BP – P/E – 12.8 Dividend Yield – 5.65%
- Shell – P/E – 13.3 Dividend Yield – 5.46%
- Total – P/E – 9.9 Dividend Yield – 5.81%
All of their payout ratios are reasonable. If you are currently underweight the energy sector, now is a great time to get in the game.
Disclaimer: I may own, buy or sell any of the stocks mentioned here.