Buffett-supported Occidental Petroleum (OXY) has doubled in price, making it the best performer in the index. The company will report its most recent earnings after Tuesday’s close. That S & P’s energy sector ETF (XLE) has increased more than 40% this year. Valero (VLO), Marathon oil (MRO), Halliburton (HALL), Hess (HE IS) and Exxon Mobile (XOM) are also big winners.
So who needs the so-called FAANGs from Big Tech – Facebook owner Meta, Apple, Amazon, Netflix and Google’s parent alphabet – when you can own a stock that actually trades with the ticker symbol FANG? It would be the oil and gas company Diamondback energy (FANG), which has risen nearly 25% this year, while leaders of the once-rising Nasdaq have fallen. (Netflix (NFLX) has fallen more than 70%, making it the S&P 500’s biggest loser this year. Meta platforms (FB) has fallen more than 40 per cent)
But is it too late to cash in on the black gold fever? The sector remains incredibly volatile and short sellers are stepping up their efforts against energy stocks in hopes of taking advantage of the possibility of a further fall in prices. Oil stocks were the biggest market losers on Monday as the Dow index fell more than 650 points.
There is a case that inflation is not disappearing for the time being. The Federal Reserve is raising interest rates, which could support oil prices for the foreseeable future, and energy stocks and other commodity-sensitive sectors could lead the market for a longer period, just as big tech did last decade.
And as long as oil prices remain relatively high, it bodes well for profits for large oil producers, drillers and other companies with exposure to crude oil.
“Given the rise in oil and gas prices this year, it is unlikely to come as a surprise to anyone that the energy sector is expected to report the largest earnings growth for the first quarter,” Wade Fowler, senior portfolio manager at Synovus Trust Company, said in a report last week.
Oil stocks still have a way to go to catch up with the technology
Other experts noted that US energy companies are ready to get a boost from many European nations cutting back on Russian oil due to Moscow’s invasion of Ukraine.
“As Russia remains a geopolitical pariah, the market expects Europe to increase its dependence on US energy supplies, which will benefit the US-based energy sector,” analysts with Morningstar’s quantitative research team said in a report late last month.
Energy stocks currently make up only a small segment of the total market, around 4.4% of the S&P 500, according to data from the Bespoke Investment Group. Tech, despite its recent downturn, still makes up about 28% of the index. There is a long way to go before the oil sector catches up.
Bespoke noted in a recent report that the gap should be narrowed further and investors should not rule out the possibility that energy stocks could regain a greater leadership role in the wider market. Analysts pointed out that after the technological stock crash in 2000, energy stocks finally matched the weighting of technology, though not until 2008.
“We do not suggest that Energy is set to get back in line with Tech, as it did in the mid-2000s, when commodities had a big run after the Dot Com crash,” Bespoke analysts wrote, “but it certainly is not. nor impossible. ”
For what it’s worth, Buffett also makes a big bet on the oil patch beyond Berkshire Hathaway’s (BRKB) investment in Occidental. Oil giant Chevron (CVX)the best performer in the Dow this year, is one of Berkshire’s top four accomplishments.
Oracle of Omaha’s company revealed late last month that it now owns a $ 25.9 billion stake in Chevron, up from about $ 6 billion at the end of the fourth quarter. Only Apple (AAPL), Bank of america (BAC) and American Express (AXP) are larger positions for Berkshire.