Key insights
- The author believes energy ETFs (XLE, XOP) are undervalued due to factors like US production growth, LNG exports, and limited renewable impact. Closure of the Hormuz Strait is seen as a potential catalyst for higher oil prices and increased investor interest in the sector. The question is when the market will recognize the value, potentially after physical shortages or strong earnings reports.
I’ve been holding oil ETF’s ever since they crashed during COVID (XLE and XOP), and while they sure bounced back nicely after COVID, they’ve remained nearly flat since ‘22 era despite all of the other headwinds that the industry has going for it. Between the massive production growth in the US (primarily from the permian), the incredibly low valuations, healthy dividends, massive growth in export capacity (especially in LNG), how renewables aren’t going to move the needle much, and that fact that oil is still essential in every day life, I’ve been waiting for XLE and XOP to hit much higher levels any day now….
Now that Hormuz is closed with long-term infrastructure damage, and no end in sight to the blockage, I firmly believe there’s no better broad sector ETF to be holding other than oil at the moment!
Question for me is - at what point does the investing world decide to join me in getting oil back to valuation levels it deserves to be? Is that when the physical shortages begin to hit, a few months after they’ve hit, after how many quarters of blockbuster earnings reports that make tech companies envious will everyone else jump in? What are your thoughts?