(1:00) – Investing Deja Vu: Past Stock Market Lessons
(12:45) – 2022 Energy Sector Breakdown
(17:55) – Stocks To Keep On Your Radar: Will The Bull Run Continue?
(32:45) – Big Takeaways From Recent Market Action: XOM, OXY, CVX, PXD, EOG, XLE, XOP
Welcome to Episode #310 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.
This week, she’s gone solo to take a look at the energy bull market of the 1970s.
Is she the only one feeling some deja-vu?
1970s Energy Bull
The 1970s saw two “shocks” to the energy market with the first being the 1973 Arab oil embargo and the second being the late 1970s Iranian Revolution. Crude went to $55 from $20 a barrel in the first shock but soared to $120 a barrel in the second.
There was also a big outcry about the huge profits that the oil companies were making with talk, by 1980, of a windfall profit tax.
You can read all about it in this Jan 1980 Washington Post article reporting on Mobil’s amazing 1979 profits which soared 78%.
Mobil Oil was the second largest oil company in America in 1979. It has since merged with Exxon and now makes up the Big Oil giant ExxonMobil.
But the free cash flow generation in the 1970s was similar to what we are seeing now in 2022.
Small Part of the S&P 500 Again
Currently, the energy sector is just 4.2% of the S&P 500. It had sunk below 2% in Oct 2020, an all-time low, before the vaccines were announced.
In 1972, energy was just 7% of the S&P 500. It would peak at 28% at the end of 1980.
Will we see a replay of the 1970s this decade?
Earnings Deja-Vu as They Are Rising Again
Another similarity with the 1970s is the incredible gain in earnings that the energy companies are seeing as crude remains above $90 a barrel.
First quarter earnings for the energy sector are expected to be up 199.7% year-over-year with revenue up 36.1%.
It’s going to be coming up against some tough comparables in the next couple of quarters, however. Will it be able to keep this growth all year?
5 Energy Companies with Rising Earnings
1. ExxonMobil XOM
ExxonMobil is an integrated oil company with production, refining, chemicals and service stations. Earnings are expected to rise 61% in 2021 to $8.66 from $5.38.
ExxonMobil has been rewarding shareholders with a dividend that is yielding 4.2%.
Shares have soared 42% year-to-date but are still cheap with a forward P/E of just 9.9.
Just like the 1970s, ExxonMobil is back in the spotlight. Is it time to buy it?
2. Occidental Petroleum OXY
Occidental Petroleum is a big oil producer and has a sizable chemicals business. Earnings are expected to soar 212% to $7.96 from $2.55 a year ago.
Shares are up 105% year-to-date and even Warren Buffett at Berkshire Hathaway has added to his position.
Occidental Petroleum is still cheap, with a forward P/E of 7.3.
It’s regular dividend is yielding 0.9%.
Should investors follow Buffett’s lead and buy Occidental in 2022?
3. Chevron CVX
Chevron is also an integrated oil company with production, refining and service stations. Earnings continue to be revised higher for the full year as crude and natural gas prices remain elevated near multi-year highs.
Earnings are expected to rise 82.5% to $14.84 from $8.13 last year with 2 estimates raised in the last week.
Shares are up 46.3% year-to-date and are trading near their 52-week highs again.
But Chevron is still a value stock with a forward P/E of 11.4.
Should investors be jumping in on Chevron on these new highs?
4. Pioneer Natural Resources PXD
Pioneer Natural Resources is a large oil and natural gas producer focused on the Permian Basin. It does not do refining.
Earnings are expected to rise 114% in 2022 to $28.47 from $13.26 last year. But the analysts continue to revise estimates higher for the year, with 3 estimates moving higher in just the last week.
Shares are up 74% year-to-date but are still cheap with a forward P/E of 8.9.
Pioneer is paying out 80% of its profits to shareholders. It’s regular dividend is yielding 2.2% but it’s also paying special dividends.
Should income investors be looking at Pioneer?
5. EOG Resources EOG
EOG Resources is an independent oil and natural gas producer with a market cap of $72 billion. Earnings are expected to be up 62.4% to $13.98 from $8.61 last year.
Analysts have been revising earnings estimates higher in the last week for EOG Resources as well, with 3 revisions in that time.
Shares are up 77.8% year-to-date and are trading near their 52-week highs. For many investors, it’s hard to buy on the highs but EOG is still cheap with a forward P/E of 8.9.
It too is paying a dividend, yielding 2.5%, and special dividends.
Should EOG Resources be on your short list?
What Else Should You Know about the 1970s Investing Playbook?
Tune into this week’s podcast to find out.
[In full disclosure, Tracey owns shares of PXD in her personal portfolio.]
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Chevron Corporation (CVX) : Free Stock Analysis Report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
Pioneer Natural Resources Company (PXD) : Free Stock Analysis Report
EOG Resources, Inc. (EOG) : Free Stock Analysis Report
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