Energy was one of the hardest-hit industries by the coronavirus pandemic. It was, without exaggeration, pummeled into the ground, with demand destruction causing dozens of bankruptcies among oil and gas drillers. But most survived, and some of them have emerged from the worst of the crisis stronger. Over the past couple of weeks, stock markets have rebounded strongly on potentially positive news about three vaccine candidates, developed by Pfizer, AstraZeneca, and Moderna. Although experts have warned that mass vaccinations are far from a done deal as the vaccines’ efficacy and safety has yet to be proven conclusively, traders rejoiced, and energy stocks soared.
Although the energy segment of the stock market is still underperforming other segments that have actually benefited from the pandemic, it has improved vastly from months ago, and some companies in this segment offer an attractive investment opportunity even as EV, solar, and wind seek to disrupt the industry.
According to one investment firm, Altfest Personal Wealth Management, these companies include BP, Exxon, and Chevron. According to the firm’s chief executive, Lewis Altfest, who spoke to MarketWatch, BP is attractive with its low-cost production and strong balance sheet, despite a 50-percent cut in dividends earlier this year.
For Exxon, Altfest noted that it had not changed its dividend size despite the crisis, and because the company was an integrated oil producer, it would benefit from the low price of oil for its refining and chemicals operations.
The advantage of Chevron, according to him, was that in addition to its solid asset base, the company also had relatively low debt.
But there are also others that have performed relatively—in some cases surprisingly—well in the pandemic. EQT Corp. is one such case. The pure-play natural gas producer benefited from its lack of exposure to oil. Despite a price slump in gas similar to the price slump in oil, it recorded a share price jump of some 70 percent over the past 12 months.
ConocoPhillips is another strong performer, according to the Motley Fool’s Matthew DiLallo. DiLallo noted the supermajor’s geographical and operational diversification, including oil, gas, and LNG production, and both conventional and non-conventional extraction. Conoco made headlines this year when it announced it had agreed to acquire Concho Resources in one of the few big deals in the energy space this year. The benefits to be reaped from the combination could make the company even more attractive.
For most of this year, the energy industry has been a depressing place for investors except for the occasional announcement of a massive emission reduction effort that could turn some Big Oil majors into Big Utility. These announcements did not receive a homogenous response: some newer, more ESG conscious investors welcomed emissions-cutting efforts. Others with a more traditional bend were unpleasantly surprised. Yet the news of a possible mass vaccination coming to nations near you in weeks also meant that oil demand destroyed by the pandemic could begin to return relatively soon. Warnings abound: mass vaccinations will take months, and it will be a while longer before things start to return to normal, and people return to driving and flying more. Even so, the energy sector was due a reprieve, and the vaccine news provided it.
Going forward, more positive news is likely in the pandemic department, meaning energy stocks may have just started to realize their upward potential. This, in turn, means now might be the time to buy the strong performers before they climb further up. Of course, the risks are still there. Even a single report about problems with any of the vaccines hailed as solutions to our coronavirus problem could wreak yet another havoc on the super volatile energy markets.
By Irina Slav for Oilprice.com
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