Investment guru Peter Lynch said he believes that savvy investors should be stocking up on oil, energy services, and natural gas shares.
While Lynch recently told Barron’s that he believes renewable energy sources may be the long-term future, he reminds investors that natural gas and oil will be a necessary bridge to this.
“You wouldn’t know it from the stocks, but oil is 25% higher than a year ago,” said the vice chairman of Fidelity Management & Research.
“Why have these stocks gone down? Everybody’s assuming the world’s not going to use oil for the next 20 years, or five years, or next year. The private-equity money wants out. The banks want to cut back their lending. They can’t do an initial public offering,” he said.
Lynch still holds one of the greatest track records — an astonishing 29% annualized return from 1977 until 1990 while managing Fidelity Magellan — nearly double what the S&P 500 index produced in the same period.
Lynch wouldn’t disclose specific company names, but touted small-cap oil and natural gas companies.
“Energy services is awful; that could have a major turn in the next year or two,” he said. “Oil is interesting. Look, longer term, solar, windmills really work. But you need natural gas and oil to bridge to this,” he said.
“Everybody’s assuming the world’s going to not use oil for the next 20 years, or next year. China might sell five million electric vehicles next year, but they might also sell 17 million internal combustion engines. They don’t have old cars to retire. There are no electric airplanes. Near term, liquid natural gas and liquid petroleum gas might replace diesel fuel for trucks,” he said.
“I’m buying companies that I don’t think will go bankrupt. They’ve got to be around the next 18 to 24 months, or I have no interest,” he said.
He also offered more general investing advice.
“The one thing I want everybody who is buying individual stocks to get is that they have to understand the story, the five reasons something is going to go right for the company. If you can’t convince an 8-year-old why you own this thing, you probably shouldn’t own it,” he said.
“Don’t invest in a company before you look at the financials. If you made it through fifth grade, you can handle the math.”
Meanwhile, Bloomberg explains that this year has been one of moderate gains for the price of oil, but it has been bleak for producers.
West Texas Intermediate crude is heading for an annual increase of more than 30%, but the best performance among the global oil majors has been Chevron Corp., which has posted a gain of just 10%. The S&P 500 Energy Index has almost entirely decoupled from oil in 2019 and is on course to underperform crude by the most since the shale revolution began a decade ago.
In the broader U.S. energy space, the best performers in 2019 have been pipeline operators, refiners, and companies with big assets outside the shale sector. The worst have been shale-heavy producers, especially those with high levels of debt and spending, or more assets that are more gassy -- gas prices are down for a third year.
With energy now such a small share of the broader market, many fund managers are unwilling to devote time to studying individual stocks, according to Jennifer Rowland, an analyst at Edward Jones & Co. Chevron is the go-to stock for energy exposure due to its large index weighting and commitment to financial discipline, she said.
“Pick Chevron, maybe one other, and to heck with the rest of the space,” she said, describing the mindset of energy investors in 2019.
https://www.newsmax.com/finance/streettalk/fidelity-peter-lynch-energy-stocks/2019/12/23/id/947111/
