Edmonton Journal

The Street’s most-loved stocks just can’t shake off jitters

- MICHAEL BELLUSCI and LU WANG

TORONTO/NEW YORK No one wants to buy energy stocks these days. But sellside analysts are staying bullish.

Barely in the green this year, the S&P 500 Energy Index has been hit by volatility in oil and natural gas prices. The gauge has risen a mere 1.3 per cent compared with a 15-per-cent gain in the benchmark index for U.S. equities.

On Tuesday, oil prices jumped almost five per cent after the United States said it would delay imposing a 10-per-cent tariff on certain Chinese products.

Analysts aren’t concerned — they expect energy stocks to deliver the best gains among major S&P 500 sectors, rising more than 26 per cent over the next 12 months, according to data compiled by Bloomberg.

The energy sector is suffering from one very clear problem: there are no buyers of energy stocks.

“The energy sector has been a disappoint­ment for investors in 2019, generating the worst return of all sectors,” Tobias Levkovich, Citigroup Inc.’s U.S. equity strategist said in an Aug. 9 research report titled Does Anyone Care About Energy Anymore?

It is “one of the least preferred groups according to our latest client survey work, with oil and gas pricing being a key issue.”

Whether the performanc­e is measured on a one-month, six-month or 12-month horizon, shares of energy companies trail all 10 major industries. The group has seen its contributi­on in the S&P 500 falling to the lowest since at least 1990. In Canada, the S&P/TSX Energy Index is the worst-performing sector with a 3.2-per-cent climb, while the benchmark S&P/TSX Composite Index advanced more than 13 per cent.

Oil and gas companies have been shifting their spending to shareholde­r returns, boosting buybacks over capital spending, in hopes of garnering more investor attention, but interest remains scant.

“The energy sector is suffering from one very clear problem: there are no buyers of energy stocks,” said Eric Nuttall, senior portfolio manager of Toronto-based Ninepoint Partners in a report this month. “To even the most casual market observer, it should be blatantly obvious that the energy sector is broken.”

While analysts focus on cheap valuations and a possible rebound in profits, weakening global growth makes investors hesitant to go bargain hunting in energy shares.

During the past year, value stocks have lost favour as money keeps flowing to defensive stocks and companies whose earnings are seen resilient.

Buy recommenda­tions for the S&P 500 Energy Index are near previous highs, Levkovich said.

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