As for what this means for investors, even without the prospect for higher oil prices, I would maintain an overweight exposure to energy stocks simply based on valuations. Despite outperforming year-to-date, energy sector valuations still have room to grow, as measured by looking at the S&P Global 1200 Energy index. Multiples are still at a discount to their 10-year average and fund positioning is low, as I point out in my new Market Perspectives paper. In addition, I continue to see good free cash flow and several recent investment projects are beginning to bear fruit.
In particular, I see good opportunities in certain integrated companies and exploration and production companies where there is resource growth. You can read more about my outlook for oil prices, and what this means for investors, in the full Market Perspectives piece, “Oil’s Precarious Balance,” and you can listen to a client call on the subject here.
Source: Market Perspectives piece “Oil’s Precarious Balance”
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.