Oil and Gas Sector Stocks Are Cheap Based on Valuation: Schroders

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Oil prices have soared in the past year with prices currently hovering around the $80 mark for Brent crude. Rising oil prices have triggered a mini bull market in energy stocks that have barely moved higher in the past few years. Global investors are turning attention to this sector after many years and are trying to identify potential winners.Despite the rise in energy stock prices, the sector remains cheap according to a piece by Schroders.

From the article:

Valuations suggest the sector looks cheap

Another very important point to mention is that in our view the oil companies appear to be cheap.

Four years of declining oil prices have weighed on the sector, especially as some companies have been forced to cut their dividends or pay them in scrip (shares) instead of cash. The sector as a whole is out of favour with the market.

However, those firms that continued with disciplined investments through the downturn may find themselves in a good position with demand still strong and oil prices back on the rise once more.

In short, we see opportunities in the sector, both among producers and services firms. While global growth may be peaking, and worries abound over trade and geopolitics, the energy sector has a cycle of its own, driven by long-term supply and demand dynamics.

Moreover, we see oil stocks as beneficiaries of inflation which, as we have discussed before (here and here), could be on the way back.

Source: Why the oil & gas sector is energising investors by James Sym, Schroders

 

The Top 10 Dividend Stocks of Chile

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Chile is one of the attractive markets for income investors. Among the major emerging markets, Chile is one of the widely followed ones due to its importance of commodities especially copper and lithium. Next to Mexico, the Chilean equity market can be considered as the most stable and well developed equity market in Latin America. One of the unique qualities of Chilean companies is that by law a certain portion of profits each year have to be paid out to shareholders as dividends.

The top 10 dividend stocks by yield in Chile are shown in the chart below:

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Note: Data shown is as of April 20, 2018 and is based on the domestic market.

Source: Dividend Ranking

Banco Santander- Chile (BSAC) and Banco de Chile (BCH) are consistent well paying dividend payers. Sociedad Química y Minera de Chile (SQM) has attracted global investors’ attention in recent years due to the voracious demand for lithium which is used in the batteries of Electric Vehicles(EVs).

Disclosure: Long BCH

Stock Buybacks by US Firms are Soaring

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US firms are buying back their own stocks at a much higher rate than last year. After the corporate tax rate was slashed from 35% to 21%, American companies decided to put their cash hoardings to use by buying back stocks.

S&P estimates US firms are expected to spend $650 billion on share buybacks this year.

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Chart Source: Barron’s

Source: Share buybacks are soaring – is this a sign of market turmoil ahead?, Money Observer

The Top 10 British Dividend Stocks

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The British equity market is one of the best markets for investors looking for dividend stocks. The UK has a strong dividend culture and compared to the 2% or so on the S&P 500, British firms tend to have much higher dividend yields. In addition, US investors do not have to worry about dividend withholding taxes (except REITs).

The top 10 dividend stocks by yield among the publicly traded British companies are shown in the chart below:

Click to enlarge

Note: Data shown is as of April 20, 2018 and is based on the domestic market.

Source: Dividend Ranking

Disclosure: No Positions

On The Return of Foreign Oil Producers Year-to-Date

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Oil prices have soared in the past year with some experts predicting $100 or $80 per barrel this year. The WTI Crude Oil closed at $71.01 for a rise of over 48% in one year. As oil prices rise so do the stocks of most oil producers.

Some of the exchange-listed foreign oil producers have soared by more than 25% so far this year. The table below shows the year-to-date price returns of foreign oil ADRs:

S.No.ADR NameTickerStock Price (as of May 18, 2018)Year-to-Date Change(%)Country
1Petroleo Brasileiro-PetrobrasPBR16.4857.24%Brazil
2EcopetrolEC21.8447.71%Colombia
3China Petroleum & ChemicalSNP102.0840.88%China
4China National Offshore Oil-CNOOCCEO179.1726.73%China
5StatoilSTO27.3226.70%Norway
6EniE39.0817.08%Italy
7PetroChinaPTR77.9416.77%China
8TOTALTOT63.9915.86%France
9BPBP47.1912.73%United Kingdom
10Royal Dutch Shell - B SharesRDS.B76.211.04%United Kingdom
11SasolSSL37.9310.76%South Africa
12Royal Dutch Shell - A SharesRDS.A73.338.87%United Kingdom
13YPFYPF20.07-12.31%Argentina
14Petrobras ArgentinaPZE11.26-16.63%Argentina
15Transportadora de Gas del SurTGS17.81-20.06%Argentina
16CGGCGG2.9-35.12%France

Note: Returns shown above are based on price only (excluding dividends).

A few observations:

  • The best performer in the above list Brazilian oil major Petrobras(PBR). After a major corruption scandal the stock fell from over $60 a few years and now is on the path to recovery.
  • Colombia’s EcoPetrol(EC) used to be another hi-flier that fell back to earth to trade at below $10 a share. Currently the stock on a nice upward trajectory and as tensions in middle east increase oil producers in other regions rise faster. Ecopetrol paid out a decent dividend earlier this year and could double from current levels by next year.
  • Compared to the performance of emerging market oil producers the developed market companies have not performed very well. For example, Italian oil producer Eni(E) is up 17% and France’s Total(TOT) has shot up by only 16% year-to-date.

For US oil and gas producers check out the following links:

Disclosure: Long EC, PBR