There is nothing like falling oil prices to bring out the bargain hunters. Investors seeking a good deal have turned bullish on embattled energy stocks and are buying them up with gusto.
Investors are betting that prices of crude oil cannot continue to drop and should turn in the other direction sometime in the future. Brent, the global benchmark, has traded around $60 a barrel since mid-month, after dropping by half from its June high. A stabilization in futures prices since Dec. 15 has helped energy stocks rebound for the past two weeks but his hasn’t stopped eager energy investors from plowing record amounts into the industry.
Oil Drops
Oil slipped to a five-year low of $57.88 in London yesterday. Futures have plunged 50 percent this year from their June high.
More than $3.16 billion went into exchange-traded funds holding stakes in Exxon Mobil Corp. (XOM), Schlumberger Ltd. (SLB) and other energy stocks this month, even as the price of oil fell 20 percent. That’s almost four times the average for the year and more than the prior record in December 2007, when oil was trading near $91 a barrel.
“There definitely seems to be evidence of investors seeking to bottom-fish this market and pre-position for 2015,” David Mazza, head of ETF research at State Street Corp., said in a phone interview. “Some investors we’ve spoken with don’t believe the negative picture on energy that’s become consensus.”
ETFs are increasingly seen as a bellwether of investor sentiment because they allow broad bets across a sector with lower transaction costs than buying individual stocks. Year-to-date, energy ETFs have attracted $9.28 billion of new money, the most of any sector and more than triple the same period in 2013.
Analysts Bullish
Analysts remain comparatively bullish on energy, forecasting that 44 companies in the Standard & Poor’s 500 will rise 23 percent in 12 months. That’s more than twice as much as the next-best industry, the materials sector which includes International Paper Co. (IP) and Monsanto Co. (MON)
The fall in prices has caused several oil companies to cut back spending for 2015. The S&P 500 Energy Index dropped 27 percent from a June high, when oil peaked for the year, through Dec. 15 when prices began to stabilize. The index, which includes Exxon and Chevron Corp., has risen 10 percent since the middle of the month.
Per-share profit for the coming year is expected to rise 69 percent among energy stocks, according to the analysts