More Bullish Developments for the Ene...
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May
30
Jonathan Yates
More Bullish Developments for the Energy Sector
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Despite slumping global economic growth, investors continue to pile into the energy sector.

Hedge funds and other institutional investors have been moving to unlock shareholder value in energy companies.  The main tactic so far has been to establish a position and then push management to spin off assets.  It is now happening with Oil Service International (NYSE: OIS).  Previous targets were Murphy Oil (NYSE: MUR) and Hess (NYSE: HES).

The chart below shows how the share prices of Murphy Oil and Hess Oil have risen, as a result.

Investors should expect this to continue for a variety of factors.  Eventually emerging market nations such as China, India, and Brazil will grow again.  The United States economy appears to be recovering.  That will increase the fundamental economic demand for oil.

As the chart below shows, the performance by the exchange traded funds for oil (NYSE: USO) and natural gas (NYSE: UNG) have been strong.

The policies of central bankers around the world should keep up commodity prices, which is bullish for energy stocks.  Due to quantitative easing policies, paper money could fall in value.  That happened before, particularly after Quantitative Easing II.  That drove up the price of oil, and other commodities such as gold.  When oil rises in value, so do the price of oil company stocks.

Energy sector companies also pay good dividends.  ConocoPhillips (NYSE: COP), a Warren Buffett favorite, pays a dividend of 4.21%, as an example.  For Chevron (NYSE: CVX), the dividend is over 3%.  That provides a solid income base for investors seeking yield in today’s low interest rate environment.

These factors should combine to take the share prices of energy firms higher and keep the sector in a bullish paradigm.



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