The S&P Energy Index, lagging the oil price rally, still has room to run, according to a JPMorgan Chase & Co strategist who called the energy stocks rally at the beginning of this year.
According to Bloomberg, Dubravko Lakos-Bujas was one of the lone energy stock bulls at the start of this year. But energy stocks have surged 50% since then.
And according to Lakos-Bujas, it isn't over.
Oil prices have returned to pre-pandemic levels-and then some. In fact, oil prices are 25% above pre-covid levels. Brent prices were trading just under $67 in January 2020, but have rallied above $80 per barrel now.
Energy stocks, however, have failed to rally as much, still down 2% from the pre-covid era, and are trading at a near-record low relative to their book value.
"We expect the sector to re-rate as companies deliver strong results, raise guidance, and reiterate their focus on shareholder capital return rather than unprofitable market share gains," Lakos-Bujas' client note read on Thursday, according to Bloomberg.
"In a world where most assets have broadly re-rated due to lower rates and liquidity, energy still offers non-linear earnings growth potential for several years at an attractive valuation."
JPMorgan sees years of underinvestment on low profitability and strict environmental policies cutting into supply-an issue that the coronavirus pandemic has exacerbated.
But now, the case for prolonged outperformance of the energy sector is upon us, JPMorgan strategists said.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group. More