Energy stocks still have gas left in the tank

Energy stocks have outpaced the wider market this year. The S&P 500 energy index is up 61 per cent, compared with the tech index’s 26 per cent decline.

Yet, the oil sector trades on just nine times forward earnings – about half of its pre-pandemic levels. Tech stocks still command a multiple of around 21 times, despite slowing revenue growth and profit declines.

Success breeds scrutiny. US President Joe Biden, who in June accused Exxon of making “more money than God”, blames oil companies for fanning inflation.

In both Europe and the US, calls grow for a windfall tax on the sector’s record profits. Meanwhile, costs should swell as oil service companies look to pass on their higher operating expenses to their clients.

For those willing to invest in oil, Chevron and Exxon remain good bets. Their strict capital discipline stands in stark contrast to the tech sector’s profligate ways. Assuming oil prices hold up given the boycott of Russian oil and OPEC’s production cuts, they will remain reliable cash gushers for another year.

Financial Times

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