Energy shares should not be missed by the bottom investor

Stock markets plummeted. Due to the cooling of the worlds of the economy, the price of oil fell on its aunt. This offers both cheap and existing investors after years of trouble to buy securities at attractive prices.

Investors don’t need a lot of money. Not all market segments were affected by the crisis in the same way. Food companies and companies switching to telecommunications remained affected. Shares of developers have fallen the most so far.

The sector offers energy companies a relatively low price. By 2030, energy consumption should increase by 44%. It seems that the future of the sector is not good, although there are risks.

The price of oil and its substitutes

The world’s energy consumption is constantly growing. At present, oil consumption accounts for the largest share of energy consumption (more than 2/3 of total energy consumption). The contribution of oil accounts for 95% of all agricultural commodities, as well as 95% of transport through oil derivatives. No wonder the world’s oil consumption is constantly growing.

Given that oil resources are limited, it is only a difficult time when oil consumption reaches its peak. Sweat begins to decline gradually. Of course, it is impossible to estimate this peak, because it is not possible to accurately determine global oil reserves and estimate the development of technology and the future of obtaining additional oil finds or obtaining additional energy options that have slowed down oil consumption. It is certainly certain that at the moment when the supply of oil begins to decline, we can expect an increase in its price.

The price of oil as the main energy source affects the price of its substitutes, such as coal. If the price of oil rises, then the price of substitutes (generally electricity) will rise, and vice versa – if the price of oil falls, then the price of their substitutes will also fall.

Price action of energy companies

The price of the action of energy companies is mostly influenced by the price of oil and the price of its substitutes. The price in the market is formed by the supply and demand. The supply of oil has long been dependent on the size of reserves in oil fields, in the short term it is mainly affected by the hurricane season and the impact of the OPEC cartel.

The demand for oil is growing in times of economic growth and, conversely, is declining in times of recession. It follows that the shares of energy companies are pro-cyclical. This means that in times of economic growth their price increases, in times of economic stagnation and recession, on the contrary, decline.

When comparing indexed oil prices and indexed action prices, energy companies look at the evidence for the previous statement at a glance. The relationship between the price development of oil and oil companies is almost absolute.

The price of oil largely determines the share price of oil companies. For companies engaged in the production of electricity, there is a relationship between the price of oil and stock prices. This relationship is not so strong, because electricity is not a perfect substitute for oil. In addition, we can observe less price cyclicality of the actions of power companies than oil companies.

Investments in energy should not be missing in the dnm portfolio

The profitability of the actions of oil companies is strongly dependent on oil prices. The profitability of the actions of power companies is indirectly dependent on oil prices, and this relationship will be as strong as it will be according to oil consumption on total energy consumption. The demand for oil is unlimited in the long run and is dependent on future economic growth.

Therefore, if the investor expects global economic growth over a long period of time, then investing in energy companies is a reasonable increase in its weights. Analyzes show that these results are substantiated. If, on the other hand, there is a decline in economic activity, then it should look for defensive titles.

At a time when the world economy is contracting, we can see a sharp drop in oil prices. And we will witness a change in the trend and we will be fighting the economic boom, then, of course, oil prices and action prices of energy companies will rise. This will pay off the investment.

A significant question for investors is the end of the financial and now the whole economic crisis. However, investment in the energy companies sector should be part of each equity portfolio, as this sector is a significant part of the economy as a whole. An investor who invests for a long time, with a high probability, gave the time when his investment invested in this stock sector.

If the EIA forecasts of a 44% increase in energy consumption by 2030 are confirmed, then strong price growth will be achieved by energy companies. At the same time, a new investor does not have to understand individual stocks, because the open share of funds will change them to the energy sector.

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