over 2 years ago • 1 min
Shares of energy companies are failing to reflect the huge rally in crude oil’s price as economies reopen following the coronavirus pandemic – potentially creating an opportunity for profit.
The chart shows how West Texas Intermediate oil for delivery in November (plotted in blue) has soared over the past year. Yet oil stocks – represented by the Energy Select Sector SPDR Fund (ticker: XLE; plotted in pink) – have failed to keep pace.
While oil costs 40% a barrel more than five years ago, the SPDR energy fund – whose biggest holdings are Exxon Mobil, Chevron, and Schlumberger – is down nearly 20%. Investors willing to buy stocks in this polluting sector of the market could clean up as this gap closes.
Strategists at the investment bank JPMorgan this week reiterated their favorable outlook on global energy stocks, pointing to the spread that’s opened up between oil stocks and the oil price, their low valuation compared with book value, and their attractive dividend yield.
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