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Stock Market Leadership In 2018 To Come From Oil & Gas

Stock-Markets / Oil Companies Jan 13, 2018 - 12:17 PM GMT

By: WMA

Stock-Markets The thirty-three (33) Oil & Gas companies of the S&P 500 will lead that important benchmark, maybe not during January, but through 2018 and beyond. The reason is simple. It’s all about revenue, cash flow and earnings growth on account of higher Crude Oil prices, rising to the level where this crucially important industry is now achieving sustainable economics.

The Oil narrative is changing. No longer is the industry full of doom and gloom.

Investors who study a company’s fundamentals before taking positions in stocks got on board early. Trend followers have now gotten the message and are becoming invested. At some point this year, the public will follow. Oil stocks will lead the S&P 500 by the end of 1Q2018. 


The broad issue to consider at present is why is investor sentiment changing 180 degrees to now favoring Energy.

For starters, the World Bank is estimating that the global economy is growing now at +3.1% annually. Rapidly growing economies need increasing amounts of Oil. Since 2014, however, producers of Oil severely held back their capital expenditures for exploration and development, to unsustainably low levels. So, with demand on the rise and supply being constrained, especially with production cuts agreed by OPEC + Russia, at some point the $WTI and Brent Oil prices had to rise. They have been since the summer of 2017, doubling to the $63-$69 level, which is now impacting corporate operating results quite significantly.

We know that as the S&P 500 rises, the leaders are always winners while the laggards could be losers unless new money is brought to the table during periods of monetary expansion, in which case even laggards can be winners as witnessed since early 2009. As we say, a rising tide floats all boats.

However, we are now wary because the highly favorable market conditions experienced since 2009 are unlikely to continue. That’s because G-20 central banks are now in a monetary contraction cycle and we expect them to remain so through 2018-2020. Policy reversals of this extent require a radical change in our thinking. The squiggly line era of blindly chasing momentum stocks is over, replaced by analysis of the factors that truly drive market prices, which happen to be corporate fundamentals.

From consensus earnings estimates, it appears that S&P 500 components will grow their earnings +13.7% in 2018 over 2017 and +9.5% in 2019 over 2018. The Dow 30 companies are projected to grow earnings by +11.4% this year. The public is impressed. The broad market indexes are rising.

However, the S&P 500 figures include the 33 Oil & Gas companies that are expected to grow their earnings by an average +65.5% and +25.6% respectively, which is significantly better than the rest. Therein lies the important story

S&P 500 Energy Name

Ticker

WMA Score out of 3734

WMA Rank in list

Consensus EPS estimate for 2017

Consensus EPS estimate for 2018

Consensus EPS estimate for 2019

Expected EPS increase 2018/2018

Expected EPS increase 2019/2018

Andeavor

ANDV

26

1

$6.88

$9.18

$10.54

33.4%

14.8%

EOG Resources Inc.

EOG

46

2

$0.87

$2.20

$3.35

152.9%

52.3%

Halliburton Co.

HAL

96

3

$1.17

$2.16

$2.89

84.6%

33.8%

Occidental Petroleum Corp.

OXY

142

4

$0.84

$1.78

$2.12

111.9%

19.1%

Phillips 66

PSX

184

5

$4.45

$6.68

$7.29

50.1%

9.1%

Marathon Petroleum Corp.

MPC

196

6

$3.84

$4.63

$4.98

20.6%

7.6%

Cimarex Energy Co.

XEC

230

7

$4.50

$6.19

$7.82

37.6%

26.3%

ConocoPhillips

COP

275

8

$0.59

$1.87

$2.37

216.9%

26.7%

Chevron Corp.

CVX

337

9

$4.21

$5.59

$6.14

32.8%

9.8%

Apache Corp.

APA

388

10

$0.12

$0.86

$0.90

616.7%

4.7%

Cabot Oil & Gas Corp.

COG

482

11

$0.52

$0.96

$1.37

84.6%

42.7%

Pioneer Natural Resources Co.

PXD

569

12

$1.68

$3.62

$5.39

115.5%

48.9%

Marathon Oil Corp.

MRO

590

13

-$0.37

-$0.03

$0.07

-91.9%

-333.3%

Newfield Exploration Co.

NFX

645

14

$2.13

$2.80

$3.73

31.5%

33.2%

Valero Energy Corp.

VLO

651

15

$4.93

$6.69

$7.23

35.7%

8.1%

Devon Energy Corp.

DVN

778

16

$1.81

$2.46

$2.91

35.9%

18.3%

Concho Resources Inc.

CXO

793

17

$1.90

$2.57

$3.80

35.3%

47.9%

Exxon Mobil Corp.

XOM

903


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