Energy Stocks: Still Room to Run?

However, the problem with WTI at or around $48 is that the price is still too low to boost exploration and production significantly, Colyer says. The U.S. rig count has recovered to about 400, after falling from 1,500 to a low of 300; it’s still far below previous activity.

Nonetheless, Colyer is bullish on energy for several reasons. First, insider buying among corporate officers and directors has been substantial for the past six months or so.

Among the energy sectors, he explains, the integrated firms were among the first to bottom out, and thus they are attractive from a multi-year investment perspective.

“I think you have a lot of opportunity left in the [exploration and production] sector, especially for those companies that have managed to successfully recapitalize and fixed their balance sheets,” he stated.

“Many of them have done bond exchanges. Many of them have recapitalized by accepting outside capital but there are assets for sale for cheap and those who have successfully recapitalized will be able to take advantage and buy those,” Colyer explained.

Other Players

The performance of other energy sectors, such as the service and equipment companies and offshore drillers, will likely move along in response to changes in rig counts and demand for support services. In contrast, refiners underperform when prices are rising, because the spread between their cost of crude oil and the price they receive for their products tends to narrow.

Overall, though, the outlook for energy stocks is good.

“I think the days of being bearish on energy are behind us. They’re not in front of us. You should be probably bullish and, quite frankly, probably very bullish,” Colyer said.