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The Energy-Stock Rally Is Attracting General Investors

Oil prices have been falling, but oil stocks continue to rise. Now general investors seem more engaged with energy names.

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Frederic J. Brown/AFP via Getty Images

A unique phenomenon has been playing out in the oil market: oil stocks have risen 5% in the past month even as the price of oil has fallen 9%.

The divide could mean that oil stocks are set for a downward reversion, because they’ve outpaced the price of the commodity by too much. But some analysts see more upside ahead for many of the stocks. Their optimism has as much to do with general investor sentiment toward energy than strict fundamentals.

Wall Street had been shunning oil and gas stocks for years because of underperformance and concerns about their impacts on climate change. But the rebound in the stocks and the growing importance of energy to the economy make it increasingly difficult to completely avoid the industry. If large generalist fund managers and index funds add more oil and gas exposure, it could give the stocks more positive momentum.

Tudor, Pickering, Holt analyst Matt Portillo wrote recently that third-quarter earnings weren’t spectacular from oil companies, but the stocks nonetheless have stayed strong.

“Even though earnings prints in multiple subsectors have not been as smooth as we would like, especially in upstream, stocks have continued to move higher,” he wrote. “We continue to believe this is likely a function of fund flow as investor interest in energy expands and, given the solid valuations and upside to crude oil by 2024, should continue to push the sectors’ weighting in the
S&P 500
(currently 5.6%) meaningfully higher over the next eighteen months.”

Fifteen years ago, energy made up more than 10% of the S&P 500, but years of weak financial performance turned investors away from the companies. In 2020, as Covid sapped oil demand, their weighting slipped to below 3%.

But earnings from energy companies are now a growing part of the S&P 500’s overall earnings base, with the sector growing earnings by 142% in the third quarter, even as the average S&P 500 company grew earnings by 4.5%. Energy accounted for 14% of the S&P 500’s third-quarter earnings, but the sector still makes up a much smaller percentage of the index’s market cap.

Citi analyst Alastair Syme expects energy to outperform again next year as investors flock to the stocks to avoid an earnings recession elsewhere.

“We see market rotation into energy equities as having further to run, even though names in our U.S. coverage already sit at all-time highs,” he wrote in a note this week. Syme upgraded
(BP) to Buy from Neutral, and has Buy ratings on both
(COP) stock and American depositary receipts of Spanish company

RBC Capital Markets analyst Michael Tran also sees more interest in energy from generalist investors. The bank conducted a survey of investors about energy, and was surprised by just how many generalists responded.

“We were absolutely floored to learn that this group comprised a whopping (38%) of survey takers,” Tran wrote. “The most of any category. If this doesn’t scream engagement, I’m not sure what does. We venture to guess that such a survey, conducted anytime between the 2015-2020 period would have this group comprising sub 10% of total responses, if that. Generalists are back and engagement is high.”

Write to Avi Salzman at


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