Hey There Income Hunters,
As work continues toward a final infrastructure bill, it’s time to focus on the biggest winner …
General consensus will tell you environmental, social and governance (ESG) investments are a no-brainer and will provide you with the greatest returns.
But what our “Capital Gains” team of Andrew Giovanni and Frank Gregory would tell you is don’t get caught in trading the topline consensus narrative.
That’s because, although ESG may continue to be the talking heads’ No. 1 topic of discussion, it has also suppressed investment in the most demanded commodity of all …
The table below illustrates how many essential products are created from petroleum and natural gas. This demand guarantees consumption will rise for decades to come:
Meanwhile, the asset base in the energy sector is shrinking while demand will increase as G7 nations focus on building infrastructure for developing countries in the years ahead.
I’ll share the details of how the energy sector is starving for capital and how production at current levels cannot be maintained.
And I’ll give you a favorite producer of mine that is ripe for another big move higher, as well …
Energy Sector Valuations
Rising demand for energy, combined with flat production, has driven prices higher for petroleum products.
Meanwhile, fundamentals have improved as free cash flow has risen to historic highs.
That said, valuations remain suppressed due to investor trends moving toward ESG strategies at a scorching pace.
Check out the ratio for S&P 500 price-to-book value …
Falling price-to-book ratios would make sense if crude oil and natural gas demand was shrinking …
But according to the US Energy Information Administration, petrol and natural gas consumption will steadily rise through 2050 as demand for renewables grows:
Old School EXXON (Ticker: XOM) Ready to Soar
Exxon has taken an old school approach to most renewable energy investment …
While many of their peers have diverted investment to achieve long-term carbon intensity reduction targets, XOM remains committed to oil and gas.
They see a lack of available competitive advantages and continued pressure on returns in renewables.
So, XOM will focus on investments limited to only the highest-return projects that are viable in a wide range of price scenarios.
And XOM’s greater capital discipline should result in improved returns, stronger balance sheet and more net profit returned to shareholders.
Notice XOM’s Power Income fair value price using a discounted cash flow. This places today’s $57 dollar share price trade at a 25% discount to fair value.
With stock valuations at extremes, it is nice to own an awesome, proven company like Exxon at a discount — plus receive a $3.48 dividend each year adding 6.10% to your annual returns.
Technical Set Up
XOM has corrected 16% as oil traded down since the OPEC production increase.
This is a healthy correction in a long-term bull market.
Notice the upward sloping 200-day moving average and the key support at $54 dollars from the previous double bottom completed in March and April …
Shorter-term we have seen high-volume buying as XOM rebounds off the $54 support.
XOM is a buy based on the bullish long-term trend and the short-term trend turning positive last week as XOM bounced off the key support and rallied on higher volume and lower volatility
Higher price, higher volume and lower volatility are the three key ingredients to a market poised to move higher.
I am looking to put on a bullish option strategy in the days ahead and will alert you when I do.
Bring It Home
The Exxon story is another contrarian play that puts you ahead of the crowd and in positions where you can maximize your return on capital.
This is why you must attend …
This event will give you the tools and the truth so you can stay ahead of the crowd
You can learn how to trade like a hedge fund — without the performance pressures. Plus you’ll have access to the inside intel from the experts who have operated on the inside.
And you can speak directly to pro traders who turn current events into the day’s best trade ideas.
Don’t miss it!
Keep sending your awesome feedback and questions, and as always …
Live and Trade With passion My Friends,