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Apr 20, 2018

The Wall Street Journal | MoneyBeat: Energy Stocks Are Getting Pricey (Again), April 20, 2018.

The Wall Street Journal
MoneyBeat

Energy Stocks Are Getting Pricey (Again)

By Chelsey Dulaney
Morning MoneyBeat is the Journal’s pre-market primer. To receive the newsletter via email, click here.
Market Snap at 04/20/2018 08:38:49 AM ET
S&P 500 Futures -0.02%
2692.5
DJIA Futures -0.11%
24610
U.S. 10 Year -2/32
2.92%
WSJ Dollar Index 0.22%
84.16
Crude Oil -0.51%
$67.94
Gold -0.22%
$1345.80
Europe
Asia
FTSE 100 0.35%
Nikkei 225 -0.13%
DAX -0.23%
Hang Seng -0.94%
CAC 40 0.38%
Shanghai -1.47%

Overnight Developments

  • European stocks and U.S. futures were mixed Friday, but major benchmarks remained on track for weekly gains as a mostly upbeat earnings season helped restore investor confidence.
  • S&P futures were flat, while Dow futures were modestly lower. The Stoxx Europe 600 was recently down 0.1%.
  • Crude prices slipped ahead of Friday's meeting of the Organization of the Petroleum Exporting Countries, where the potential to extend production caps may be discussed.
  • The Breakfast Briefing

    Bolstered by a surge in global crude prices, oil and gas companies have taken over as the U.S. stock market's priciest segment.
    The U.S. energy sector is trading at a ratio of 19.7 times expected earnings over the next year, according to a report this week from Credit Suisse. That's above the tech sector’s rate of 17.9 times earnings and the S&P 500's rate of 16.3 times earnings.
    Energy stocks have surged lately alongside rising crude prices. The price of a barrel of crude is now approaching $70 a barrel, a level not seen since 2014, as major oil exporters hold back production and geopolitical tensions have threatened supply. U.S. crude is up 5.2% this month, ending Thursday at $68.29 a barrel.
    Energy companies, whose share prices were depressed by a multi-year slide in oil prices, are now among the market’s best performers as investors anticipate higher oil prices will bolster their revenue and profits.
    Shares of Baker Hughes have rallied 21% this month through Thursday, while Occidental Petroleum shares are up 17% and Valero Energy shares are up 16%. The S&P, meanwhile, is up 2%.
    The stock gains have helped drive the energy sector’s valuation up by nearly a full percentage point since mid-March, according to Credit Suisse data, putting it ahead of the consumer discretionary and tech sectors that it trailed in March.
    Valuations for those sectors, which encompass highflying companies such as Amazon.com Inc. and Facebook Inc., have eased recently amid market volatility and a rout in technology stocks since Facebook disclosed a user-data breach last month.
    Credit Suisse notes that while energy valuations are elevated compared to the broader market, they have fallen significantly compared to a few years ago, when companies were posting steep losses because of the crude-price decline.
    "A combination of strong fundamentals and weaker stock prices has made the sector’s valuations more attractive than they have been in several years," analysts wrote.
    Where do you see value in the market? Let the author know your thoughts at chelsey.dulaney@wsj.com.

    Stocks to Watch

    GE—Up 5.4%: General Electric reported a quarterly loss as the conglomerate took a $1.5 billion charge related to a subprime mortgage business it once owned, but the company said it was making progress on its cost-cutting efforts and reaffirmed its 2018 financial targets.
    Honeywell—Up 1.4%: The conglomerate increased its expectations for earnings and organic sales growth for 2018, citing strong performance in the latest quarter and healthy demand in several segments including commercial aviation and defense.
    Wells Fargo—Down 0.7%: Wells Fargo is close to settling claims by federal regulators related to its risk management, The Wall Street Journal reported late in Thursday's session.
    Mattel—Up 0.7%: The struggling toy maker named Executive Chairman Ynon Kreiz its next CEO after The Journal reported current Chief Executive Margaret “Margo” Georgiadis was in discussions to leave the firm following about a year in the role.
    Skechers USA—Down 23%: Skechers gave weaker-than-expected projections for profits and revenue in the current quarter.

    Number of the Day

    16%
    Shares of Philip Morris International fell 16% Thursday, suffering their biggest single-day decline ever. The seller of Marlboro cigarettes reported revenue that missed analysts’ expectations and cautioned investors about a drag on earnings this year.

    Must Reads

    OPEC members are meeting in Saudi Arabia today and over the weekend to review compliance with their agreement to cut production.
    As oil prices have soared, hedge funds and other big investors have amassed a record number of bullish bets on crude, putting the market at risk of a swift fall if the outlook sours.
    Wells Fargo is close to settling claims by federal reg