Some experts believe that despite this year’s big move, the energy stock boom is still in its early stages.
“The oil sector has had structural tailwinds for a long time,” said Matt Cole, head of products and investments at Strive Asset Management. “There is still a bullish case as supply is scarce.”
Cole isn’t too worried about the recent drop in energy prices. He said energy companies should mint money as long as oil costs continue to rise.
In other words, oil prices must remain stable. This may not be a repeat of his 2008 when oil prices plummeted in the depths of the Great Recession/Global Financial Crisis.
“Oil prices don’t need to go up. Energy companies can make huge profits if they stay relatively high,” Cole said.
As such, analysts now expect ExxonMobil to post an annual profit of about $53 billion in 2022. That’s more than double his profit last year. Chevron’s net profit is also expected to more than double his $36.2 billion.
“As long as oil prices stay above $80 a barrel, energy stocks are the best bet as they continue to post record sales and profits,” Louis Navellier, chairman of Navellier & Associates, said in a report. He also noted that the stock is trading at a fairly low valuation based on earnings estimates and pays out big dividends.
Exxon, for example, is trading at less than eight times its 2022 earnings projections, a significant discount to the broader market. The S&P 500 is valued at about 19 times its expected earnings this year. Exxon also pays a dividend of about 3.8%, compared to a yield of about 3.2% on his 10-year US Treasury bonds.
Cole also said investors should definitely pay attention to the fact that Buffett recently bet big on oil stocks.
“Buffett’s legacy is to find profitable companies and buy them when they’re very cheap,” he said. “And I think this is the environment for rates to rise.”
Could a new iPhone boost Apple stock?
Buffett is also a big fan of Apple. Berkshire owns more than 5.5% of his stake in the company, making him the second largest holder of Mutual after his fund giant Vanguard.
Apple’s stock price tends to fluctuate on the day of a product announcement, often dropping after the news is finally announced. But make no mistake. Investors want to see a fresh new line-up of mobile phones as it should boost the company’s earnings and sales.
The iPhone 14 launch could also boost Apple’s lucrative services division even further. Subscriptions to Apple Music, iCloud, Apple TV+, and more. Services revenue accounted for nearly 25% of his total revenue in Apple’s latest quarter.
Monday: US stock markets are closed for Labor Day. OPEC+ meeting; new UK prime minister nominated
Tuesday: US ISM Service Index