Do you play energy through Woodside or Santos?

switzer.com.au
5 min read
fairly easy
While energy has been the worst performing sector of 2021 so far, there are a number of reasons why you might consider investing in the energy majors.
The energy sector has been the worst performing sector on the Australian share market this year. It has lost 3.5% compared to the market's overall return of 17.7%.

This is surprising for two reasons. Firstly, the price of crude oil (and the spot price for oil related derivatives such as LNG) has been going up. While it has come off from its peak, near US$70 per barrel, it is not too far off its five-year high.

West Texas Intermediate Crude Oil – 9/16 to 9/21

Source: CNBC

Secondly, the US energy sector has performed quite strongly. We often take our lead from the USA, so to see the return for the S&P 500 energy sector this calendar year at 30.75% is a real surprise.

The only explanation I can come up with is ESG (environmental, social and governance) selling by Australian institutions, who have all of a sudden come to the realisation that they don't want to hold investments in carbon intensive companies. There are some specific company issues which may not be helping, but all stocks have felt the downward selling pressure. So much so that the sector now only accounts for 2.7% of the overall market by total capitalization.

Over 10 years, the sector has been a disaster for many investors, both here and overseas. To the end of August, the sector went backwards by 2.9% pa compared to the market's 10.3% pa return. USA investors didn't fare much better, losing on average 0.1% pa.

So who in their right mind would want to invest in energy stocks?

Well, patient investors might be thinking it can't get much worse, and if you are bullish on the prospects for global growth, it does look like a value play. One positive is that apart from when the Saudis and the Russians had a spat at the height of the Covid crisis (this is when oil prices temporarily went negative), the OPEC+ group of oil exporters seems to be remarkably disciplined at controlling production and keeping the oil price on an even keel.

Here are a couple of the energy majors to consider. Woodside or…
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