Why Fund Managers are coming back to the Energy Sector
Posted: Mon Dec 22, 2014 5:03 pm
Oil's Decline Leaves Stock Bargains in its Wake -- Getting Personal by Daisy Maxey - Dec 22, 2014
> Shares of some midstream energy companies "have been overdone on the down side," says an adviser
> An adviser adds to his stake in JPMorgan Alerian MLP Index Exchange Traded Notes
> Deutsche Asset & Wealth Management sees benchmark crude at $84 a barrel by the end of next year
For financial adviser Keith Goddard, the steep decline in stocks of U.S. energy companies has turned into a buying opportunity. The chief executive of Capital Advisors Inc. in Tulsa, Okla., has been snapping up shares of discounted midstream oil companies.
Prices "are attractive enough to give us a good return over three years," says Mr. Goddard, whose independent investment firm oversees $1.5 billion, mostly for high-net-worth clients.
Like Mr. Goddard, many advisers and mutual-fund managers aren't waiting to see if oil prices decline further. Over the past few weeks, they have been buying shares of midstream energy firms, large exploration-and-production companies and energy-focused master limited partnerships. Many nevertheless expect the sector to remain volatile at least for the near term and perhaps longer.
Stocks of midstream companies--those involved in the transport and storage of oil and gas products--"have been overdone on the downside," says Mr. Goddard. Over the last couple of weeks, he's added to his position in natural-gas pipeline firm Williams Cos. (WMB) and purchased shares of Continental Resources Inc. (CLR), a major producer in North Dakota's Bakken Shale.
About a week ago, he also bought shares of natural-gas producer Range Resources Corp. (RRC), and last week he was adding to his position in Oneok Inc. (OKE), which distributes natural gas through utilities in Kansas, Oklahoma and Texas.
Mr. Goddard isn't happy to see the stock market's rally, which is making some energy stocks less of a bargain. His goal is to invest up to 20% of the firm's growth-stock strategy in shares of energy companies, up from just 4% to 5%. "We're not going to do it unless we get a fatter pitch than this," he says.
However, he expects more pain for energy companies in the New Year, saying the growth rate of North American oil production will likely slow by the second half of 2015. When oil prices will rise will depend on demand, he says.
Treven Ayers, chief investment officer at Clearview Wealth Management in Charlotte, N.C., has also been taking advantage of the downturn, rebalancing client portfolios into the selloff. His firm, which manages $65 million, is finding opportunities in domestic and international stocks as well as energy-focused MLPs and global bonds.
Last month, the firm added to its holdings in Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX), the nation's first- and second-largest energy companies, which explore for, produce and refine oil and natural gas. "A month ago, they became very attractively priced and each have nice solid dividends," Mr. Ayers says.
The firm has also added to its stake in oilfield-services equipment maker National Oilwell Varco Inc. (NOV). It is currently considering adding more to those three positions, he says.
Mr. Ayers's firm also beefed up its stake in JPMorgan Alerian MLP Index Exchange Traded Notes, which offer exposure to midstream energy MLPs. The ETNs have gained more than 15% annually over the past five years, he points out. But many of the energy-focused MLPs have plunged around 18% over the last three months and aren't for the faint of heart, warns Mr. Ayers. Each client of his firm has 3% to 4% of their overall portfolio invested in MLPs.
With more volatility likely in the first quarter, Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management, says he wouldn't heavily overweight beaten-down oil stocks now.
Cyclical and consumer-oriented stocks will benefit from falling oil prices as consumers will have more discretionary dollars to spend, and early next year may be a good time to acquire them. If investors want to buy energy companies, they should look for well-known, well-diversified companies with strong balance sheets, he adds.
Larry Adam, chief investment officer at Deutsche Asset & Wealth Management's wealth-management division in the Americas, says he likes midstream MLPs, which are less sensitive to the price of oil than some other MLPs. But he says he wouldn't be "overly aggressive" about buying them now; early next year might be a better time.
Integrated oil companies--those that engage in exploration, production, refinement and distribution of oil and gas--will likely offer opportunities, Mr. Adam says: They will experience much less volatility than other parts of the energy sector, many are now trading at attractive valuations and have positive cash flows, and they'll be free to take over any distressed oil rigs or companies, he notes.
Oil prices will likely start to grind higher in the first half of 2015 due to a reduction in supply, Mr. Adam says. His firm expects West Texas Intermediate crude oil, a benchmark in oil pricing, to range between $50 and $70 a barrel in the first half of next year, and to rise to $84 a barrel by the end of next year, from just $56.50 Friday.
> Shares of some midstream energy companies "have been overdone on the down side," says an adviser
> An adviser adds to his stake in JPMorgan Alerian MLP Index Exchange Traded Notes
> Deutsche Asset & Wealth Management sees benchmark crude at $84 a barrel by the end of next year
For financial adviser Keith Goddard, the steep decline in stocks of U.S. energy companies has turned into a buying opportunity. The chief executive of Capital Advisors Inc. in Tulsa, Okla., has been snapping up shares of discounted midstream oil companies.
Prices "are attractive enough to give us a good return over three years," says Mr. Goddard, whose independent investment firm oversees $1.5 billion, mostly for high-net-worth clients.
Like Mr. Goddard, many advisers and mutual-fund managers aren't waiting to see if oil prices decline further. Over the past few weeks, they have been buying shares of midstream energy firms, large exploration-and-production companies and energy-focused master limited partnerships. Many nevertheless expect the sector to remain volatile at least for the near term and perhaps longer.
Stocks of midstream companies--those involved in the transport and storage of oil and gas products--"have been overdone on the downside," says Mr. Goddard. Over the last couple of weeks, he's added to his position in natural-gas pipeline firm Williams Cos. (WMB) and purchased shares of Continental Resources Inc. (CLR), a major producer in North Dakota's Bakken Shale.
About a week ago, he also bought shares of natural-gas producer Range Resources Corp. (RRC), and last week he was adding to his position in Oneok Inc. (OKE), which distributes natural gas through utilities in Kansas, Oklahoma and Texas.
Mr. Goddard isn't happy to see the stock market's rally, which is making some energy stocks less of a bargain. His goal is to invest up to 20% of the firm's growth-stock strategy in shares of energy companies, up from just 4% to 5%. "We're not going to do it unless we get a fatter pitch than this," he says.
However, he expects more pain for energy companies in the New Year, saying the growth rate of North American oil production will likely slow by the second half of 2015. When oil prices will rise will depend on demand, he says.
Treven Ayers, chief investment officer at Clearview Wealth Management in Charlotte, N.C., has also been taking advantage of the downturn, rebalancing client portfolios into the selloff. His firm, which manages $65 million, is finding opportunities in domestic and international stocks as well as energy-focused MLPs and global bonds.
Last month, the firm added to its holdings in Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX), the nation's first- and second-largest energy companies, which explore for, produce and refine oil and natural gas. "A month ago, they became very attractively priced and each have nice solid dividends," Mr. Ayers says.
The firm has also added to its stake in oilfield-services equipment maker National Oilwell Varco Inc. (NOV). It is currently considering adding more to those three positions, he says.
Mr. Ayers's firm also beefed up its stake in JPMorgan Alerian MLP Index Exchange Traded Notes, which offer exposure to midstream energy MLPs. The ETNs have gained more than 15% annually over the past five years, he points out. But many of the energy-focused MLPs have plunged around 18% over the last three months and aren't for the faint of heart, warns Mr. Ayers. Each client of his firm has 3% to 4% of their overall portfolio invested in MLPs.
With more volatility likely in the first quarter, Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management, says he wouldn't heavily overweight beaten-down oil stocks now.
Cyclical and consumer-oriented stocks will benefit from falling oil prices as consumers will have more discretionary dollars to spend, and early next year may be a good time to acquire them. If investors want to buy energy companies, they should look for well-known, well-diversified companies with strong balance sheets, he adds.
Larry Adam, chief investment officer at Deutsche Asset & Wealth Management's wealth-management division in the Americas, says he likes midstream MLPs, which are less sensitive to the price of oil than some other MLPs. But he says he wouldn't be "overly aggressive" about buying them now; early next year might be a better time.
Integrated oil companies--those that engage in exploration, production, refinement and distribution of oil and gas--will likely offer opportunities, Mr. Adam says: They will experience much less volatility than other parts of the energy sector, many are now trading at attractive valuations and have positive cash flows, and they'll be free to take over any distressed oil rigs or companies, he notes.
Oil prices will likely start to grind higher in the first half of 2015 due to a reduction in supply, Mr. Adam says. His firm expects West Texas Intermediate crude oil, a benchmark in oil pricing, to range between $50 and $70 a barrel in the first half of next year, and to rise to $84 a barrel by the end of next year, from just $56.50 Friday.