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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Wall Street Is Turning Its Back On Big Tech As Oil Stocks Rally

  • Big Tech appears to be losing its upside throne to oil, gas, and energy stocks.
  • Energy stocks currently make up just 4.4% of the S&P 500, a far cry from tech's 28% slice of the market.
  • "Given the jump in oil and gas prices this year, it will likely not be a surprise to anyone that the energy sector is expected to report the largest earnings growth for the first quarter."

Once upon a time, Big Tech stocks were all the rage on Wall Street, with investors bidding them up to crazy heights. To wit, the famous quintuple of Facebook (now Meta), Amazon, Apple, Netflix, and Google (now Alphabet) at one point made up nearly a fifth of the S&P 500--a staggering figure considering the S&P 500 is generally viewed as a proxy for the United States economy as a whole. In sharp contrast, investors gave the oil and gas sector a wide berth thanks to years of poor shareholder returns, mounting debt, and dwindling profits.

But now the tables have turned, with the once-ascendant Nasdaq plunging while oil stocks have become the new FAANG: the Technology Select Sector SPDR ETF (NYSEARCA:XLK) has crashed 24.3% in the year-to-date, while its energy peer, Energy Select Sector SPDR ETF (NYSEARCA:XLE) up 35.9% over the timeframe. On Thursday, Japan's  Softbank--the epitome of the excesses that fueled the boom in technology stocks-- reported a loss of around 1.71 trillion yen, the equivalent of $13.2 billion, for the fiscal year ending in March. That marked the biggest-ever loss in its four decades of existence for the world's biggest technology investor.

But energy investors could not be happier, with the black gold rush fueling record earnings.

"Given the jump in oil and gas prices this year, it will likely not be a surprise to anyone that the energy sector is expected to report the largest earnings growth for the first quarter," Wade Fowler, senior portfolio manager at Synovus Trust Company, has told CNBC.

Energy stocks currently make up just 4.4% of the S&P 500, a far cry from tech's 28% slice of the market. Fowler says energy stocks have plenty of room to run to catch up to tech, "We're not suggesting that Energy is set to get back in-line with Tech like it did in the mid-2000s when commodities had a huge bull run after the Dot Com crash, but it's certainly not impossible either,"  the Bespoke analyst has said.

Indeed, for the first time, the world's most valuable company is an energy company: the market value of Saudi Aramco, the world's largest oil company, has surpassed the American company Apple, making the Saudi oil giant the world's top-valued company. This came after the company's shares climbed 46.20 riyals, bringing the market value to $2.464 trillion (9.24 trillion riyals), while Apple was valued at $2.461 trillion.

But it's not all smooth sailing for oil's ride back to the top. The volatility is incredible, and the sector's near 10% decline on Monday means that there is a hearty band of short sellers betting against the industry. 

Companies with less than 2% float shares short include Equinor ASA (NYSE:EQNR), Shell PLC (NYSE:SHEL), TotalEnergies (NYSE:TTE), BP Inc. (NYSE:BP), Exxon Mobil Corporation (NYSE:XOM), EOG Resources (NYSE:EOG), Chevron (NYSE:CVX), and ConocoPhillips (NYSE:COP).

For investors looking for bargains, Simon Wong, an analyst with Gabelli Funds in New York, has tapped Whiting Petroleum Corp.(NYSE:WLL), Valaris Ltd (NYSE:VAL), and Tidewater Inc. (NYSE:TDW) as being heavily discounted now. All three emerged from pandemic-driven bankruptcies.

Here are 5 of the most heavily shorted energy stocks, meaning investors should exercise caution when buying them.

  • CNX Resources Corporation

              Market Cap: $3.6B

              Short Interest: 14.3%

              YTD Returns: 34.1%

CNX Resources Corporation (NYSE:CNX) is an independent natural gas and midstream company that acquires, explores for, develops, and produces natural gas properties in the Appalachian Basin. 

The company operates in two segments, Shale and Coalbed Methane. It produces and sells pipeline-quality natural gas primarily for gas wholesalers. The company owns rights to extract natural gas in Pennsylvania, West Virginia, and Ohio from approximately 526,000 net Marcellus Shale acres; and approximately 610,000 net acres of Utica Shale, as well as rights to extract natural gas from other shale and shallow oil and gas positions from approximately 1,006,000 net acres in Illinois, Indiana, New York, Ohio, Pennsylvania, Virginia, and West Virginia. It also owns rights to extract coalbed methane (CBM) in Virginia from approximately 282,000 net CBM acres in Central Appalachia, as well as 1,733,000 net CBM acres in West Virginia, Pennsylvania, Ohio, Illinois, Indiana, and New Mexico.

 

  • Callon Petroleum Company,

 

              Market Cap: $2.8B

              Short Interest: 14.2%

              YTD Returns: -16.6%

Callon Petroleum Company (NYSE:CPE) is a Houston, Texas-based independent oil and natural gas company that focuses on the acquisition, exploration, and development of oil and natural gas properties in the Permian Basin in West Texas. 

As of December 31, 2021, its estimated net proved reserves totaled approximately 484.6 million barrels of oil equivalent, including 290.3 MMBbls oil, 577.3 Bcf of natural gas, and 98.1 MMBbls of natural gas liquids. The company was founded in 1950 and is headquartered in Houston, Texas.

  • Comstock Resources

             Market Cap: $3.5B

             Short Interest: 13.9%

             YTD Returns: 71.2

Headquartered in Frisco, Texas, Comstock Resources, Inc.(NYSE:CRK), an independent energy company, engages in the acquisition, exploration, development, and production of oil and natural gas primarily in North Louisiana and East Texas, the United States.

 As of December 31, 2021, the company had 6.1 trillion cubic feet of the natural gas equivalent of proved reserves. It also owns interests in 2,557 producing oil and natural gas wells. 

  • Chesapeake Energy Corporation

             Market Cap: $10.8B

             Short Interest: 13.3%

             YTD Returns: 27.4%

Based in Oklahoma City, Oklahoma, Chesapeake Energy Corporation(NASDAQ:CHK) is an independent exploration and production company that engages in the acquisition, exploration, and development of properties for the production of oil, natural gas, and natural gas liquids from underground reservoirs in the United States. 

The company holds interests in natural gas resource plays in the Marcellus Shale in the northern Appalachian Basin in Pennsylvania and the Haynesville/Bossier Shales in northwestern Louisiana; and the liquids-rich resource play in the Eagle Ford Shale in South Texas. As of December 31, 2021, it owned interests in approximately 8,200 gross productive wells, including 6,500 wells with working interest and 1,700 wells with an overriding or royalty interest; and had estimated proved reserves of 661 million barrels of oil equivalent. The company was founded in 1989 and is headquartered in Oklahoma City, Oklahoma.

  • Plug Power Inc.

             Market Cap: $9.6B

             Short Interest: 13.0%

             YTD Returns: -51.6%

Plug Power Inc. (NASDAQ:PLUG) is a Latham, New York-based energy company that provides hydrogen fuel cell turnkey solutions for the mobility, material handling, and stationary power markets in North America and internationally. It focuses on proton exchange membrane (PEM) fuel cell and fuel processing technologies, and fuel cell/battery hybrid technologies, as well as related hydrogen and green hydrogen generation, storage, and dispensing infrastructure.

The company offers GenDrive, a hydrogen-fueled PEM fuel cell system that provides power to material handling electric vehicles and GenFuel, a liquid hydrogen fueling delivery, generation, storage, and dispensing system.

Plug Power offers its products to retail distribution and manufacturing businesses through a direct product sales force, original equipment manufacturers, and dealer networks. It has a strategic partnership with Airbus SE to decarbonize air travel and airport operations with green hydrogen; and Fortescue Future Industries to manufacture electrolyzer technology in Australia. 

By Alex Kimani for Oilprice.com

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