The great recovery of the stock indexes was mainly concentrated in the communications and technology companies, lagging a lot behind the oil companies that began to react from the solidity of their balance sheets, which show an extraordinary generation of cash that allows them to resume their programs dividend and share buyback. From a relative valuation point of view, the energy sector lags strongly (measured through the Price Earnings multiple) with the S&P 500.
Oil will continue to be the energy with the largest market share for several years as we see in the following table. Renewable energies with strong growth have not yet acquired the level of scale and development necessary to achieve replacement.
Total primary energy demand by fuel type 2018-2040
Leading companies in the sector:
Exxon Mobil Corporation, American company with more than 150 years of history. It is the largest publicly traded oil company in the world. It is dedicated to the exploration and production of gas and oil in the USA and other countries. It operates through the Upstream, Downstream and Chemical segments. Worldwide, ExxonMobil markets fuels, lubricants, and chemicals under four brand names: Esso, Exxon, Mobil, and ExxonMobil. It applies next-generation technologies to help safely and responsibly meet the world’s growing needs for high-quality chemicals and energy. It maintained dividends throughout the pandemic and exceeded earnings expectations for the past 4 quarters. With oil on the rise, it is expected to continue to surprise in the next balance sheets.
Chevron Corporation, through its subsidiaries, participates in integrated energy, chemicals and petroleum operations around the world. It operates in the Upstream and Downstream segments. It offers a very good dividend and the possibility of increasing it, this is due to the strength of its business model and free-cash-flow. Currently it allocates US $ 10.6 billion to the payment of dividends (dividend yield = 5.1%), this means that with current prices it would have an excess of cash of US $ 9 billion. It has one of the strongest balance sheets in the industry, given that its debt / equity is 0.3x. They are working on renewable fuels, hydrogen and carbon capture. It has carbon capture projects with Enterprise Products Partners (EPD) and with Bunge (BG) for the production of renewable fuels.
Royal Dutch Shell plc, an energy and petrochemical company with a global presence. It explores and extracts oil and natural gas, markets and transports LNG (liquid gas) and operates all the necessary Upstream and Midstream infrastructure to deliver gas to users. The company also operates in the markets for special use fuels, gasoline, diesel, jet fuel, carbon emission rights, electricity and all types of petrochemicals: ethylene, polypropylene and aromatics, monomers, solvents and detergents, among others. The high margins and the reduction of debt confirm the great moment of profits of the oil company, the management’s focus is on increasing the return to shareholders. The current dividend yield is 4.7%, and the objective is for it to grow at 4% per year. Management was one of the first to take precautions against the pandemic last year, since they cut the dividend last year, the company has already increased it 3 times.
BP p.l.c., operates globally in the Gas, Low Carbon Energy and Oil Production segments. It participates in the Natural Gas and Biofuels markets, onshore and offshore. It has wind and solar generation facilities, provides decarbonization solutions and carbon capture services. It is also engaged in the production and marketing of petroleum products, lubricants and is developing its own electric vehicle recharging unit. It is in a transition process to become an integrated energy company with the clear goal of lowering its carbon footprint. The dividend yield (5%) and the buy back program (5%) can ensure a return to the shareholder of 10%.
In order to do so, you can open an account at Balanz. Once opened, the client transfers the amount he wishes to invest from his bank account to the client account assigned in Balanz and there -from the platform or app- he looks for the Investment Idea section; Select the sector that is most attractive to you and invest. If the investor prefers to follow this path hand in hand with a specialist, it is important to note that at Balanz each client has a financial advisor at their disposal to accompany them at all times and assist them in their investment strategies in a personalized way.
Head of Investment Ideas de Balanz Capital
