Our Global Investment Strategy service argues against buying energy-related equities.
Based on price-to-book, price-to-earnings, and price-to-sales, the energy sector looks relatively cheap today compared with 2004 (the last time that real oil prices were at current levels). That said, the prospect of significant asset write-downs, negative earnings revisions, and lower sales all suggest that these valuation measures may present a misleading view of the underlying health of energy companies.
Our sense is that while the equity and credit of these companies will present a buying opportunity later this year (in line with our expectation that oil prices will rebound in 2016; please see the next Insight), investors are better off waiting until for a better entry point.
Related:
Jeff Rubin: Massive Cap Ex Cuts Coming to the Energy Sector
