Friday, May 22, 2015

Lagging energy stocks gain Merrill's favor

 Energy stocks received renewed support from strategists at Bank of America Corp.’s Merrill Lynch unit after the shares were left behind by a two-month rally in oil.

“We believe moving to overweight is now justified,” Savita Subramanian, chief U.S. equity strategist, wrote in a report yesterday. She recommended that energy-stock holdings exceed the industry’s share of market indexes, reversing a call made in December. Steven G. DeSanctis, a strategist focusing on smaller companies, also lifted the group’s rating to overweight.

This chart compares the oil price in New York trading with gauges of energy stocks in the Standard & Poor’s 500 and Russell 2000 indexes since March 17, when crude settled at a six-year low of $43.46 a barrel.

West Texas Intermediate crude climbed 40 percent from its low through yesterday on the New York Mercantile Exchange. The S&P 500 Energy Index gained 6.7 percent and the Russell 2000 Energy Index rose 11 percent in the same period.

Subramanian referred to Exxon Mobil Corp. and Chevron Corp., the two largest U.S. energy producers, as buys. The New York-based strategist wrote that they fit her theme of favoring “big, old and ugly” stocks, presented in another report this week. She also cited Helmerich & Payne Inc., an oil driller.

To be sure, the shares of larger energy companies held up better than those of smaller peers after crude set last year’s high on June 20. The group’s S&P 500 index declined 20 percent through yesterday as the Russell 2000 gauge dropped 47 percent. The latter loss was in line with a 43 percent drop in crude.

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