Oil Stocks in the post Covid world of EVs and environmentalism

[Ad Orientem]

Good article here...

https://www.wsj.com/articles/the-dicey- ... _lead_pos7
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Not long ago I was taking a hard look at XOM mainly for their dividend which was around 10% thanks to the stock getting crushed by Covid. Ultimately I didn't pull the trigger and now that the stock has been slowly clawing back some of its losses and the dividend is below 8%, I have mixed feelings. Energy stocks have been reliable dividend payers with relatively low long term risks. But I really am getting the sense that the world is at an inflection point in terms of energy and transportation. When I look around on our highways I keep thinking of this marvelous wide angle photo taken in 1907. (https://upload.wikimedia.org/wikipedia/ ... -64956.jpg) It shows a sleek modern ocean liner arriving in New York on its maiden voyage. The ship was the first superliner to be powered by steam turbine engines and she just shattered the transatlantic speed record, shaving a full day off the normal time it took to get from one side of the pond to the other. She was the engineering wonder of the age. And just outside the gates to the pier where the liner is preparing to dock, is an ocean of horse drawn taxi cabs waiting to pick up the arriving passengers, completely oblivious to the fact that the sun was setting on their world. To my mind internal combustion engine powered vehicles are the horse drawn carriages of the 21st century.

[Pointedstick]

The smart fossil fuel companies are getting into biofuels, hydrogen, and even renewable energy generation. Shell has been deploying EV charging stations. These companies will survive, even thrive.

The dumb fossil fuel companies are plowing on oblivious to the changes happening around them, and will repeatedly make headlines crowing for government bailouts in the coming decade or two.

[Smith1776]

I see that XOM is in my Vanguard value fund. So, at least in a naive statistical sense, it seems it is indeed a good value at the current price!

[glennds]

I think you have legitimate concerns. And it's not only the encroachment of renewable energy and enviromentalism. I have heard it put that we have left the age where oil was a form of currency and moved into an era where data is the new form of currency.

But restricting this topic to investment in energy, I agree with Pointedstick, that there are some companies that are evolving and others that are not. I think it will be necessary to do a little work to peel back the onion and determine which oil companies are positioned well for a changing world and which are not. The same could be said for retailers.

IMO stocks anymore are trading on narrative as much as numbers. You could find an opportunity where the narrative has been poor thus the stock has been pummeled to a point where it is a good buy on a numbers basis (i.e. enterprise book value or DCF of dividends considering risk). Maybe that's what you're seeing with XOM. In this case, the investment thesis would be to hold the position and ride it not expecting much in the way of growth.

[I Shrugged]

You guys are buying “stories”. I have seen enough stock and sector stories to have decided they are for suckers. I’d rather buy ten oil services companies than ten enlightened futuristic energy companies. Now if they were all priced right, that’s different. But they won’t be. You’ll pay for the story. And how.

[Pointedstick]

Yeah I agree, this "computer" thing will never take off. Photocopiers are where it's at! Gimmie some of that sweet sweet Xerox stock! Never change, baby!

[I Shrugged]

Yeah I agree, this "computer" thing will never take off. Photocopiers are where it's at! Gimmie some of that sweet sweet Xerox stock! Never change, baby!

Great companies and great stocks are often very different things. You’re cherry-picking. You don’t think a lot of money has been lost on “computer” stocks?

[I Shrugged]

Sorry for being a curmudgeon. Lately it seems too hard to be diplomatic. But what I said is the product of my experience.

[ochotona]

You guys are buying “stories”. I have seen enough stock and sector stories to have decided they are for suckers. I’d rather buy ten oil services companies than ten enlightened futuristic energy companies. Now if they were all priced right, that’s different. But they won’t be. You’ll pay for the story. And how.

20 year oilfield services veteran here. I would not buy a broad ETF of oilfield services stocks like XES. Reason? Look at the names - their product lines are still oriented towards fracking, which has always been a doomed business model, simply because it's always been a money-loser since the model dawn of large scale fracking (circa 2010), and it always relies on Zero Interest Rate Policy.

Yes there will be an oilfield services rebound, but it will be oriented towards conventional E&P, not shale. It will be deepwater offshore, lots of involvement with seismic (which shale didn't use heavily), and offshore drilling companies, which unfortunately are still going bankrupt. The seismic guys are lying on the floors with knives in their backs bleeding out. I think this sector is more speculative than Bitcoin in a way.

I won't touch Oil & Gas because if I lose my job (again) that part of my portfolio will be simultaneously getting killed as I'm signing up for unemployment. I'm covered for commodity inflation by having gold, silver, and miners. For me it makes no sense.

Let me suggest a third way... the FXN ETF holds top conventional and alternative energy firms in the Russell 1000, and it's not market-cap weighted, the index is built using fundamentals and company performance. Have both cakes and eat both. As the universe transitions to new energy, the ETF will tilt more and more to non-fossil. Not because of political correctness, but because it makes business sense to.

[I Shrugged]

You guys are buying “stories”. I have seen enough stock and sector stories to have decided they are for suckers. I’d rather buy ten oil services companies than ten enlightened futuristic energy companies. Now if they were all priced right, that’s different. But they won’t be. You’ll pay for the story. And how.

20 year oilfield services veteran here. I would not buy a broad ETF of oilfield services stocks like XES....

Good stuff, thanks. For the record, I won’t be buying any individual stocks or sectors.

[SomeDude]

I bought about 1200 shares of XLE in Nov around $29 for the ridiculous dividend. Timing was sheer luck. Nothing has ever gone my way from day one. I plan on hanging with it until the dividend is only 1-2% more than the SPY.