Why We’re Bullish on Energy Stocks

The ESG bubble has begun deflating, and high interest rates make technology companies less attractive.

By Vivek Ramaswamy and David Sokol

Oct. 24, 2022 

Some investments are suitable for the fearful, others for the greedy. U.S. energy stocks may be a rare fit for both. The sector is an inflation hedge and also has home-run growth potential if liberated from shareholder-imposed mandates to abide by environmental, social and governance constraints. Energy stocks should continue to outperform as capital rotates from technology to energy.

Record low interest rates from 2009 through 2021 led investors to embrace risk by valuing uncertain cash flows in the distant future relative to low-yielding cash in the bank. That fueled a 12-fold appreciation in U.S. technology stocks, as the sector’s average price-earnings ratio rose to 34 from 13. (The S&P 500 index increased fourfold and multiples expanded from 14 to 25.) Pandemic policies in 2020-21 supercharged this trend. Unprecedented fiscal stimulus left consumers and states flush with cash that fueled even greater risk-taking, while lockdowns and remote work favored tech.

U.S. energy stocks charted a different course. Low interest rates encouraged oil companies to overleverage and overinvest in low-returning projects. In late 2014, the Organization for the Petroleum Exporting Countries Plus boosted production, leading to a supply glut that caused oil prices to collapse by 70% and energy stocks to plummet.

Read the full article on Wall Street Journal here.