Energy-Stock Value Persists as Oil Prices Fall: Chart of the Day


Energy stocks are cheap enough to buy even if lower crude-oil prices are sustained, according to Russ Koesterich, BlackRock Inc.’s chief investment strategist.

The CHART OF THE DAY compares price-to-book-value ratios for the MSCI World Energy Index and the MSCI World Index of developed markets, according to data compiled by Bloomberg. Koesterich used a similar chart to support his conclusion, presented in a report released yesterday.

In February, the gauge of energy stocks’ relative value fell to its lowest reading since March 2000. The industry group cost 20 percent less by comparison with book value, or the value of assets after subtracting liabilities.

While the ratio later rose as much as 13 percent from its low, energy stocks closed yesterday with a 15 percent discount to the MSCI World. The gap compared with an average premium of 2.3 percent since 2000.

“Valuations still have room to expand,” Koesterich wrote. Because of this, giving the industry more weight in investors’ holdings than in market indexes “is justified even at current levels for oil,” the New York-based strategist wrote.

Energy accounted for 9.9 percent of the MSCI World as of yesterday, according to data compiled by Bloomberg. Brent crude traded yesterday for as little as $101.11 a barrel, the lowest price since June 2013, on the London-based ICE Futures Europe exchange. Koesterich’s call was based on an assumption that Brent will swing between $90 and $110 a barrel.

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To contact the editors responsible for this story: Chris Nagi at Jeff Sutherland, Jeremy Herron

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