Oil prices are soaring, but energy-sector shares aren’t keeping pace.
With oil prices rallying sharply since the end of last year, it would be natural to expect energy-sector stocks to be tearing the roof of the market. But they’re not — and investors are starting to notice.
The J.P. Morgan analysts noted that while oil had recovered around 60% of its fourth-quarter drawdown through late last week, large-capitalization exploration-and-production, or E&P, firms were still down 25% since Oct. 31, while small-cap E&Ps were off 53% . “There’s much skepticism among investors” over energy shares, which is reflected in the discrepancy between the year-to-date gains for WTI and the energy sector, said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, in a phone interview.
Consensus expectations are for the sector to post a 20.9% drop in earnings year-over-year, the second-weakest any sector after materials stocks, noted Sam Stovall, chief investment strategist at CFRA, in a Monday note. Colas sounded a cautious note. He acknowledged that the sector’s low weighting relative to its long-run history would normally make him bullishly “pounding the table on that statistic alone,” but argued that “this is a tougher call than just saying ‘the group’s weighting in the S&P 500 is half of what it should be, so buy it.’”
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