Post by Blitz on Jan 4, 2022 9:05:16 GMT -5
This is article is related to a different stock (FEN) but the information points to better days ahead for RIG's stock price.
seekingalpha.com/article/4477403-top-pick-8-7-percent-yield-buy-before-anybody-does-fen
Excerpt:
Energy Costs Are On The Rise
November inflation data shows that the inflation rate jumped to 6.8% YoY, representing the highest levels in nearly 40 years. If you are a retiree today, the last time inflation was this high; you may have been in the early stages of your career, with decades ahead of you to build/ replenish your retirement nest egg. However, today, you must act differently to prevent irreparable damage to your purchasing power.
Consumer Price Index
Source: CNBC
I have been warning about the rise and persistence of inflation since the beginning of 2021, and it is set to remain with us for more years to come. Inflation is impacting our purchasing power significantly. We are paying more each day for almost everything we purchase, and energy is no exception. Anyone who has purchased gas for their vehicle has undoubtedly noticed the higher prices at the pump.
To protect the purchasing power of your savings, it is essential to have a reliable stream of income capable of thriving past price increases with high diligence on capital preservation.
In the chart above, we can see how the prices of natural gas, gasoline, and electricity have changed since the start of 2019. The most modest increase was the 5% per year average increase in the cost of electricity. Natural gas, which is used to heat homes and generate electricity, has gone up 9% per year. That increase in natural gas prices will undoubtedly put additional upward pressure on the cost of electricity, and it is worth noting that the world is going to increasingly depend on natural gas as it is seen as a greener choice.
There has been a slight cooldown in oil and gas prices due to the release of some crude supplies from strategic reserves and rising anxiety about the omicron variant of the coronavirus. Nevertheless, we are set to see higher prices in the near term, thanks to the growing ESG trend that has resulted in years of underinvestment in these commodities. JP Morgan's head of oil and gas research Christyan Malek recently said that the bank had identified a $600 billion shortfall of upstream investment needed between 2021 and 2030 to meet what he called a "muted" view of global oil demand.
Energy And Inflation - We Have Seen This Before
Since oil is a critical input to our economy, higher inflation has almost always been accompanied by elevated energy prices. During periods of higher inflation, the energy sector has significantly outperformed the market. Let us look at the data comparing the sectors during the periods of significant inflation - the 1940s and 1970s and much smaller inflation waves between 1987-1992 and 2003-2008.
Source: Fidelity
We can see that the energy sector's relative returns have been positively correlated to inflation every single time. In contrast, sectors like consumer discretionary and financials were negatively correlated every time. Think big tech has your back during this inflation? Think again. The technology was negatively correlated with inflation during the majority of the past periods of higher inflation, and that is because these companies largely depend on future earnings whose value will be significantly lower during times of higher inflation.
What Should Investors Do?
While past performance does not predict future results, the signs are loud and clear for higher oil and gas prices in the years ahead. Midstream, pipeline, and utility companies generate consistent cash flow from a one-time deployment of tangible assets, and we can use this to our advantage.
Fortunately, energy is the market's cheapest sector, making sufficient room for sizable capital gains and healthy dividends for long-term investors as these prices soar. High debt levels typically turn off investors who like energy companies. High debt is often necessary for this sector due to pricey capital expenses. An excellent way to play this opportunity is to find a CEF with a good mix of energy investments matching the areas seeing price increases. We present First Trust Energy Income & Growth Fund (FEN), a CEF that invests in the dividend-friendly energy sector.
FEN fund industry breakdown
Source: FEN website
seekingalpha.com/article/4477403-top-pick-8-7-percent-yield-buy-before-anybody-does-fen
Excerpt:
Energy Costs Are On The Rise
November inflation data shows that the inflation rate jumped to 6.8% YoY, representing the highest levels in nearly 40 years. If you are a retiree today, the last time inflation was this high; you may have been in the early stages of your career, with decades ahead of you to build/ replenish your retirement nest egg. However, today, you must act differently to prevent irreparable damage to your purchasing power.
Consumer Price Index
Source: CNBC
I have been warning about the rise and persistence of inflation since the beginning of 2021, and it is set to remain with us for more years to come. Inflation is impacting our purchasing power significantly. We are paying more each day for almost everything we purchase, and energy is no exception. Anyone who has purchased gas for their vehicle has undoubtedly noticed the higher prices at the pump.
To protect the purchasing power of your savings, it is essential to have a reliable stream of income capable of thriving past price increases with high diligence on capital preservation.
In the chart above, we can see how the prices of natural gas, gasoline, and electricity have changed since the start of 2019. The most modest increase was the 5% per year average increase in the cost of electricity. Natural gas, which is used to heat homes and generate electricity, has gone up 9% per year. That increase in natural gas prices will undoubtedly put additional upward pressure on the cost of electricity, and it is worth noting that the world is going to increasingly depend on natural gas as it is seen as a greener choice.
There has been a slight cooldown in oil and gas prices due to the release of some crude supplies from strategic reserves and rising anxiety about the omicron variant of the coronavirus. Nevertheless, we are set to see higher prices in the near term, thanks to the growing ESG trend that has resulted in years of underinvestment in these commodities. JP Morgan's head of oil and gas research Christyan Malek recently said that the bank had identified a $600 billion shortfall of upstream investment needed between 2021 and 2030 to meet what he called a "muted" view of global oil demand.
Energy And Inflation - We Have Seen This Before
Since oil is a critical input to our economy, higher inflation has almost always been accompanied by elevated energy prices. During periods of higher inflation, the energy sector has significantly outperformed the market. Let us look at the data comparing the sectors during the periods of significant inflation - the 1940s and 1970s and much smaller inflation waves between 1987-1992 and 2003-2008.
Source: Fidelity
We can see that the energy sector's relative returns have been positively correlated to inflation every single time. In contrast, sectors like consumer discretionary and financials were negatively correlated every time. Think big tech has your back during this inflation? Think again. The technology was negatively correlated with inflation during the majority of the past periods of higher inflation, and that is because these companies largely depend on future earnings whose value will be significantly lower during times of higher inflation.
What Should Investors Do?
While past performance does not predict future results, the signs are loud and clear for higher oil and gas prices in the years ahead. Midstream, pipeline, and utility companies generate consistent cash flow from a one-time deployment of tangible assets, and we can use this to our advantage.
Fortunately, energy is the market's cheapest sector, making sufficient room for sizable capital gains and healthy dividends for long-term investors as these prices soar. High debt levels typically turn off investors who like energy companies. High debt is often necessary for this sector due to pricey capital expenses. An excellent way to play this opportunity is to find a CEF with a good mix of energy investments matching the areas seeing price increases. We present First Trust Energy Income & Growth Fund (FEN), a CEF that invests in the dividend-friendly energy sector.
FEN fund industry breakdown
Source: FEN website