看牛的又一证据

Bull Market Signaled by Oil Stocks at 19 Times Profit (Update2)

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By Whitney Kisling

May 10 (Bloomberg) -- Investors in oil shares are morebullish on the U.S. economy than any time in the last eightyears, convinced the biggest decline in equities since the bullmarket began will prove a buying opportunity.

The 39 energy producers and equipment makers in theStandard & Poor’s 500 Index have traded at an average 19.1 timesearnings in 2010, compared with 17.8 for the index. The lasttimes they had higher valuations in 1994, 1999 and 2002, thebenchmark gauge for U.S. stocks surged an average of 22 percentin the next year, according to data compiled by Bloomberg.

The premium shows investors expect the global economy willexpand fast enough to boost fuel demand even after Europe’s debtcrisis and a breakdown in American markets on May 6 wiped out $1trillion of U.S. equity value last week, according to datacompiled by Bloomberg. The $585 billion combined market value ofExxon Mobil Corp. and Beijing-based PetroChina Co. exceeds thegross domestic product of Greece and Portugal put together.

“We’re just experiencing a needed correction, a resettingof expectations,” said Alan Gayle, a money manager atRidgeWorth Investments in Richmond, Virginia, which oversees $63billion. “Because we still believe the economy is turning thecorner and expansion is going to continue, we have a pro-marketbias. I see the market as evolving into more of a buyingopportunity.”

Market Plunge

The S&P 500 lost 6.4 percent to 1,110.88 last week, wipingout its 2010 gain and leaving it down 8.7 percent since its 2010high on April 23, according to data compiled by Bloomberg.Stocks surged today, with the S&P 500 climbing 3.9 percent to1,154.2 at 10:36 a.m. in New York, after European policy makersunveiled a loan package worth almost $1 trillion and a bondpurchases to stop the sovereign debt crisis.

While oil earnings increase the fastest when the economyexpands, they can evaporate when growth stalls. The Washington-based International Monetary Fund, which is helping finance the110 billion-euro ($140 billion) bailout of Greece, said April 22that “fiscal fragilities” pose the biggest threat to theworldwide recovery.

Earnings for S&P 500 energy companies will increase 54percent in the next 12 months, according to the mean estimate ofanalysts surveyed by Bloomberg. The gain, the second-largestforecast increase in the index behind banks, would mark theindustry’s biggest advance in four years and pushes valuationsbased on expected profits to the lowest level in the S&P 500.

“You’re likely to see more resilient demand than hashistorically been there, and you know that oil is probably goingto be in shortage for some time,” said Philip Dow, theMinneapolis-based director of equity strategy at RBC WealthManagement, which oversees $164 billion. “The single biggestmessage in this is that you definitely want to own oilcompanies.”

Beating Estimates

Energy producers beat estimates by an average 9.6 percentin the first quarter and by 4.5 percent in the fourth. The gainscame after the 78 percent surge in crude prices last year helpedoffset low demand for the refining businesses of integratedcompanies, said Pavel Molchanov, the third-most-accurate analyston New York-based Hess Corp., according to Bloomberg rankingsbased on stock performance.

“Because we’re still just in the early stages of recoveryafter the recession, demand for gasoline and diesel’s stillrelatively low, and so refining margins are proportionatelylow,” said Molchanov, with Raymond James & Associates inHouston. “Once petroleum demands move up over the next year ortwo with the economy, then downstream earnings would increase.As oil prices continue to move up, then upstream earningsincrease.”

Bears Return

While U.S. gross domestic product recovered in the secondhalf of last year from four straight quarters of declines, someinvestors were speculating last week that the rebound was over.The Dow Jones Industrial Average lost 628 points, the most sincethe bull market began in March 2009, on concern sovereign debtdefaults might spur bank losses in Europe.

Economic contraction may end the rally in oil prices, whichhave more than doubled since December 2008. While total U.S.liquid fuels consumption may climb this year, it’s still belowits peak from the last decade, according to the Washington-basedEnergy Information Administration.

“You have the uncertainty about where oil prices areheaded,” said Nick Sargen, chief investment officer at FortWashington Investment Advisors in Cincinnati, which overseesmore than $30 billion. “It’s a very uneven recovery.”

Oil Spill

Since BP Plc’s oil spill last month in the Gulf of Mexico,crude dropped 10 percent to $75.11 a barrel, with related U.S.companies sliding 8.7 percent as a group. The U.S. InteriorDepartment halted offshore drilling permits last week until atleast the end of May and delayed public meetings on expandingdrilling as the oil slick began to come ashore in Louisiana.

For integrated energy companies such as Irving, Texas-basedExxon Mobil and Chevron Corp. in San Ramon, California, thatexplore and produce oil, gas and coal, the forecast rise incrude’s price may boost profits less because the commodity isdirectly related to a smaller percentage of revenue, Molchanovsaid.

Energy suppliers in the S&P 500 rallied 242 percentstarting in October 2002 to lead a five-year advance in whichthe measure doubled, data compiled by Bloomberg show. They’veclimbed 33 percent since March 9, 2009, the third-smallest gainamong 10 industries as the S&P 500 staged the biggest advancesince the 1930s.

Oil prices and the S&P 500 have increasingly moved togethersince September 2008, after New York-based Lehman BrothersHoldings Inc. filed for the world’s biggest bankruptcy,deepening the global financial crisis.

Correlation Math

The so-called correlation coefficient between New Yorkcrude and the stock index has increased to 0.66, data compiledby Bloomberg show. That matches the level reached in September,which showed the strongest link since at least 1986. The S&P 500has risen 64 percent to 1,110.88 since sinking to a 12-year lowin March 2009, while oil jumped 60 percent in the same period.

Crude is projected to climb 13 percent to $84.71 a barrelby the end of the year and reach $86.22 by June 30, 2011,according to the average weighted estimate of 31 energy analystssurveyed by Bloomberg. Equity strategists at 13 firms from NewYork-based Goldman Sachs Group Inc. to JPMorgan Chase & Co. andCitigroup Inc. foresee a 14 percent advance to 1,268 for the S&P500 through Dec. 31, according to the average forecast in aBloomberg survey.

“As the global economy improves, demand for oil shouldincrease,” said Eric Marshall, who helps oversee $1 billion asresearch director of Dallas-based Hodges Capital Management Inc.“We think the long-term prospects of higher oil consumption arestill intact.”

Driller Ratio

Oil and gas drillers had a higher multiple than the S&P 500for the second half of 1994 after a Federal Reserve interest-rate increase ended a three-year rally in stocks. The indexadvanced 26 percent for the next four quarters into 1995.

While investors called the end of the Internet bubble, theS&P 500 rose 17 percent into 2000. The collapse of technologystocks and accounting scandals at Enron Corp. and WorldCom Inc.drove the S&P 500 to a five-year low in 2002 before surging 26percent into 2003.

“Obviously we’ve had some setbacks in the past couple ofweeks with the sovereign debt crisis in Europe and oil spills,”said John Carey, Boston-based money-manager at PioneerInvestment Management, which oversees about $230 billion.“There are things that can happen to throw everything offcourse at least short-term, but I think basically the worldeconomic picture is pretty positive. Once growth gets under wayit has pretty strong momentum. It’s hard to turn it around.”

To contact the reporters on this story:Whitney Kisling in New York at [e-mail].