If you’d bought XOM at the time, you’d be sitting on a gain of 160% by now, not including dividends. An S&P 500 index fund would be up barely 50%, and only after climbing out of the basement since 2009.
No point in kicking yourself… because you have the chance to repeat that performance now. Actually, you have the chance to achieve far bigger gains in much less time…
“Energy stocks have been shunned by investors and have languished in recent years,” writes our friend Frank Holmes, chief of the U.S. Global mutual-fund family.
Expectations for global growth and oil demand are in the tank. Thus, oil stocks held in the Energy Select SPDR ETF have underperformed the broad market by 32% since 2008, according to Goldman Sachs.
And check out this chart from Frank: It compares the price-to-book valuations of the MSCI World Energy Index with that of the MSCI World Index — basically weighing the global energy sector against the broad stock market worldwide. The ratio sits near a low last reached in… [drum roll, please]… November 1998, when oil bottomed near $10 and Exxon and Mobil were planning their merger.
Frank’s conclusion: “Today, with oil hovering around $100 a barrel and improved economic conditions in the U.S., energy stocks appear to be a tremendous bargain compared to overall stocks.”
“Be careful what you read,” writes Matt Insley of our resource-investing desk.
He spotted a Bloomberg story that says the rough winter has depleted natural gas storage: “Waves of frigid weather through March pushed stockpiles to the lowest level in 11 years. Almost 3 trillion cubic feet of gas will need to go into storage during the warm-weather months to cover winter demand, something that’s never been done before.”
Well yes, but… “Following Bloomberg’s logic,” says Matt, “you’d wonder how we’d ever dig ourselves out of this hole! We’ve lowered our inventories beyond help! How will we ever produce that much natural gas?”
The answer — easily.
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