While the general stock market had its worst year since the Great Recession in 2022, one of Wall Street’s few shining lights was the energy sector. As a result of higher commodity prices, oil and gas drillers saw an increase in profits, making the energy sector one of the best-performing business sectors.
Emerging Out of the Pandemic
In 2020, when pandemic lockdowns caused oil prices to drop into negative territory and a short recession, the energy sector’s gains were a big change. Exxon Mobil (NYSE:XOM), the largest energy firm in the United States by market capitalization, saw its share price decline by 55% that year, and the stock was eliminated from the Dow Jones Industrial Average (DJI) after 92 years.
Rising energy costs helped drive inflation to multidecade highs in 2022. After the Russian invasion of Ukraine in February reduced supply worldwide, oil prices rose to their highest point in 14 years.
The sector as a whole remained strong for the rest of the year, even though oil prices declined from their early-year heights. 2022 saw gains of 50% for the iShares U.S. Energy ETF (IYE), 55% for the iShares U.S. Oil Equipment & Services ETF (IEZ), and 47% for the iShares U.S. Oil & Gas Exploration & Production ETF (IEO). In contrast to the S&P 500’s 19% loss, the SPDR Energy Select Sector ETF (XLE) increased by 53%. (SP500).
Energy Boom Prediction
Here are some of the top predictions made by Seeking Alpha editors and columnists who offered their knowledge of energy stocks as the year comes to a close. Exxon Mobil (XOM) might increase its value by more than 30% this year, according to an essay by contributor Bill Zettler that was published in early January. Exxon (XOM) would increase by more than 70% in 2022, but this estimate wasn’t strong enough.
Zettler made his decision based on how oil prices have affected the company’s stock in the past and how much natural gas and liquefied natural gas (LNG) are needed in Europe and Asia.
Zettler said that increasing short-term oil production would be hard because there are fewer drilled-but-not-completed (DUC) wells in energy-rich parts of North America. Additionally, he claimed that Exxon’s (XOM) cost-cutting strategy would benefit the share price.
Exxon Stock Outlook
As it turned out, Exxon (NYSE:XOM) saw an almost 74% increase in 2022 as a result of its earnings breaking records in the second and third quarters of the year. Short-term support for the stock price came from the company’s announcement in April that it would increase its share buyback program to $30 billion by 2023.
The Value Portfolio, a contributor, recommended Occidental Petroleum (OXY) as a buy in January, stating that the exploration and production company was ready to pay down debt. The forecast also called for an increase in free cash flow, which is the surplus of operating cash flow over working capital and capital expenditures.
Along with stronger fundamentals, The Value Portfolio saw the potential to reward shareholders with dividends and stock buybacks.
In 2022, the price of Occidental’s stock more than doubled as Warren Buffett’s company, Berkshire Hathaway (BRK.B), kept buying more shares of the company. A little over two years after Buffett sold shares at the start of the pandemic, rumors started to spread that he would buy the whole company as shares started to pile up.
Last January, Seeking Alpha contributor Laura Starks suggested buying shares of Marathon Petroleum (MPC), saying that the independent refiner sold at a lower price than competitors. This was another foresighted call for the oil sector. She also stated that Marathon Petroleum (MPC) was in a strong position to continue repurchasing stock with the money received from the sale of Speedway gas stations to convenience store chain 7-11 in 2021.
As a result of increased demand for oil products and capacity constraints, Marathon Petroleum (MPC) saw a 77% increase in 2022 in terms of quarterly profits and revenue. Since oil prices have gone down since their peak in 2022 and it usually takes decades for a refinery to make back its initial investment, American refiners are not likely to increase that capacity.
Since the post-Ukraine rise, the price of oil has fallen significantly from its peaks. Crude finished 2022 below $81 from a level above $130.
But many of the top energy companies have kept most of the money they made in the past. For example, in November, the price of XOM reached a 52-week high of $114.66. It finished the year at $110.30, up from a 52-week low of $61.21.
Even though crude is currently trading below its highs, some still see potential for the industry. For instance, SA writer The Value Portfolio thinks that the oil giant XOM still “has value in a low oil price scenario,” claiming that the company “has multiple avenues to generate big shareholder returns, underlining how it’s a great investment.”
However, there are also detractors. According to SA blogger David Alton Clark, who wrote about that side of the ledger, XOM “is running out gas” and that “the stock’s surge may have crested.”
Exxon Stock: Check Out What Whales Are Doing With XOM
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