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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Where To Look For Value Within Energy Next Year

Electric

As 2016 comes to a close investors need to consider two important issues: (1) what to do with the stocks they held this year, and (2) how to position themselves for next year. 2016 as a whole was a good year for energy stocks. The group is still nowhere near the highs of a few years ago, but oil seems to have decisively bottomed and most energy stocks are now rebounding strongly.

Against that backdrop, investors should consider locking in gains and losses on stocks based on their personal tax situation. The typical advice of financial advisors is that investors should sell stocks where they have losses so that they can use those losses to offset realized gains and minimize their tax bill.

The picture is a little more complicated this year though given that the new administration may lower capital gains tax rates next year. As a result, investors need to give more consideration to their window dressing operations than they normally would.

Much as the strategy for dealing with existing holdings is complicated by political considerations this year, the choice of industries for next year is similarly tricky. The chart below illustrates performance of different industries in the energy sector this year.

(Click to enlarge)

While storage and transportation in the energy space had a very strong year, many other industries in the space were slower to rally. O&G drilling in particular had a poor year until the surprise OPEC production cut agreement…




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