THIS MONTH’S ISSUE
Valuations, Free Cash Flow and Long-Term Returns
Energy stocks have surged over the past year, rising 67.4% since the end of 2021. What’s even more impressive is that run has come in the context of a bear market in most stocks – the S&P 500 is down almost 17% over a similar holding period, so energy’s outperformance stretches to more than 80 percentage points. That’s historic: We examined returns, including both capital gains and dividends, for the S&P 500 Energy Index and S&P 500 since September 1989. This chart shows the percentage outperformance of energy stocks compared to the S&P 500 for every rolling 12-month period through December 2022. As you can see, energy has never outperformed the broader market to the current degree at any time over the past 30+ years; the closest analog was buying energy stocks in the mid-2000s when outperformance reached around 40 percentage points over 12 months. It’s only natural, and logical, to wonder whether energy might be due for a pause after a run of that magnitude, or whether energy stocks might be getting expensive in absolute terms and relative to the broader S&P 500. First, a word of warning. As we’ve written extensively in recent issues of Energy & Income ...
Live Chat
with Elliott Gue and Roger ConradOn 01/31/2023
Profiting from the Energy Supercycle
Roger Conrad and Elliott Gue discuss all things energy, including a look at some of our top recommendations for 2023.
Valuations Dominate Long-term Returns
Energy remains the cheapest, and best-placed sector in the S&P 500. If historical relationships persist as we expect, energy stocks are likely to continue beating the S&P 500 for years and may be one of the few sectors to provide positive real (inflation-adjusted) returns and income over the next 5 to 10 years. It’s no exaggeration to say valuations are the most important fundamental driver of long-term returns from the stock market. Take a look: The price-to-earnings (P/E) ratio is perhaps the most recognizable valuation metric in the stock market with good reason; however, it suffers from a few flaws. ...
What Q4 Earnings and Guidance Updates Will Tell Us About 2023
Companies’ annual filing requirements are much more intensive than quarterly ones. So the timing of portfolio Q4 earnings reporting and guidance updates looks set to extend to late February. Here are announced and expected dates for our portfolio recommendations’ results and investor calls. Note that Kinder Morgan Inc (NYSE: KMI) has already checked in, and we highlight its results later on in this report: Baker Hughes Co (NYSE: BKR)—Jan 23 Black Stone Minerals LP (NYSE: BSM)—Feb 21 (expected) Chesapeake Energy (NYSE: CHK)—Feb 23 (expected) ConocoPhillips (NYSE: COP)—Feb 2 Crestwood Equity Part(NSDQ: CEQP)—Feb 22 (expected) CrossAmerica Part LP (NYSE: CAPL)—Feb 28 (expected) Energy ...
Meet Our Editors
Elliott H. Gue
Founder and Chief Analyst
Since earning his bachelor’s and master’s degrees from the University of London, Elliott has dedicated himself to learning the ins and outs of this dynamic sector, scouring trade magazines, attending industry conferences, touring facilities and meeting with management teams.
Roger S. Conrad
Founder and Chief Analyst
Roger S. Conrad has successfully advised income investors since the 1980s, with a nationally acclaimed sector specialty in utilities, telecommunications and energy. He’s a managing partner of Capitalist Times author of Power Hungry, independent director of NYSE-listed Miller Howard High Income Equity Fund and contributing editor to Forbes.com.
