The 1970’s energy investing playbook is back

  • (1:00) – Investing Deja Vu: Past Stock Market Lessons

  • (12:45) – Energy Sector Breakdown 2022

  • (17:55) – Stocks to Keep on Your Radar: Will the Bull Run Continue?

  • (32:45) – Big takeaways from recent market action: XOM, OXY, CVX, PXD, EOG, XLE, XOP

  • [email protected]

Welcome to Episode #310 of the Zacks Market Edge Podcast.

Each week, presenter and Zacks equity strategist Tracey Ryniec is joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how they impact your life.

This week she’s on her own to take a look at the energy bull market of the 1970’s.

Is she the only one feeling deja vu?

Energy bull of the 1970s

The 1970s saw two “shocks” to the energy market, the first being the 1973 Arab oil embargo and the second the Iranian revolution in the late 1970s. Crude oil rose from $20 a barrel to $55 in the first shock but rose to $120 a barrel in the second.

There was also a great deal of outcry about the enormous profits oil companies made when they talked about a windfall profits tax until the 1980s.

You can read all about it in this January 1980 Washington Post article, which reports on Mobil’s amazing profits in 1979, which soared 78%.

Mobil Oil was the second largest oil company in America in 1979. It has since merged with Exxon to form major oil giant ExxonMobil today.

But free cash flow generation in the 1970s was similar to what we’re seeing now in 2022.

Again a small part of the S&P 500

Currently, the energy sector accounts for just 4.2% of the S&P 500. It had fallen below 2% in October 2020, an all-time low before the vaccines were announced.

In 1972, energy made up just 7% of the S&P 500. At the end of 1980 it peaked at 28%.

Will we see a repeat of the 1970s this decade?

Gain deja vu as they rise again

Another similarity to the 1970’s is the incredible gain in profits energy companies are seeing as Crude Oil remains above $90 a barrel.

The energy sector’s earnings are expected to rise 199.7% year-on-year in the first quarter and revenue to rise 36.1%.

However, it will face some tough competition in the next few quarters. Will it be able to sustain that growth year-round?

5 energy companies with rising profits

1. ExxonMobil XOM

ExxonMobil is an integrated oil company with manufacturing, refining, chemical and service stations. Revenue is expected to grow 61% from $5.38 to $8.66 in 2021.

ExxonMobil has rewarded its shareholders with a 4.2% dividend.

Shares are up 42% year-to-date but are still cheap with a forward P/E of just 9.9.

Just like in the 1970s, ExxonMobil is back in the spotlight. Is it time to buy it?

2. Occidental Petroleum OXY

Occidental Petroleum is a major oil producer and has a sizeable chemicals business. Earnings are expected to rise 212% to $7.96 compared to $2.55 a year ago.

Shares are up 105% year-to-date, and even Berkshire Hathaway’s Warren Buffett has added to his position.

Occidental Petroleum is still cheap at 7.3 times earnings.

The regular dividend yields 0.9%.

Should Investors Follow Buffett’s Lead and Buy Occidental in 2022?

3. Chevron CVX

Chevron is also an integrated oil company with production, refining, and service stations. Full-year earnings continue to be revised upwards as crude oil and natural gas prices remain elevated near multi-year highs.

Earnings are expected to rise 82.5% to $14.84 from last year’s $8.13, with two estimates upgraded in the last week.

Shares are up 46.3% year-to-date and are trading back near their 52-week highs.

But Chevron is still a value stock with a forward P/E of 11.4.

Should investors jump into Chevron at these new highs?

4. Pioneer Natural Resources PXD

Pioneer Natural Resources is a major oil and natural gas producer focused on the Permian Basin. It doesn’t do any refining.

Revenue is expected to grow 114% to $28.47 in 2022 from $13.26 last year. But analysts continue to revise estimates higher for the year, with three estimates moving higher in the last week alone.

Shares are up 74% year-to-date but still cheap at an 8.9 forward P/E.

Pioneer pays out 80% of its profits to shareholders. The regular dividend yields 2.2%, but it also pays special dividends.

Should Income Investors Consider Pioneer?

5. EOG resources EOG

EOG Resources is an independent oil and natural gas producer with a market capitalization of $72 billion. Revenue is expected to rise 62.4% to $13.98 from $8.61 last year.

Analysts have also revised earnings estimates higher for EOG Resources over the last week, with 3 revisions in that time.

Shares are up 77.8% year-to-date and are trading near their 52-week highs. It’s difficult for many investors to buy at the highs, but EOG is still cheap with an expected P/E of 8.9.

It, too, pays a dividend with a yield of 2.5% and special dividends.

Should EOG Resources be on your shortlist?

What else should you know about the 1970s Investing Playbook?

Tune in to this week’s podcast to find out.

[In full disclosure, Tracey owns shares of PXD in her personal portfolio.]

Want the latest recommendations from Zacks Investment Research? Today you can download the 7 best stocks for the next 30 days. Click here to get this free report

Chevron Corporation (CVX): Free Stock Research Report

Exxon Mobil Corporation (XOM): Free Stock Research Report

Occidental Petroleum Corporation (OXY): Free Stock Research Report

Pioneer Natural Resources Company (PXD): Free Stock Research Report

EOG Resources, Inc. (EOG): Free Stock Research Report

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