Genevieve Roch-Decter, CFA Profile picture
Jul 1, 2021 23 tweets 7 min read Read on X
Oil is on a helluva run… crushing the S&P and NASDAQ this year!

Time for a thread 👇
You’re going to call me a hypocrite.

Because last week I was touting ESG and this week I am talking about my oil holdings!

But the truth is, in order to live the lives we do today, we have needed and still need oil.

It’s the lifeblood of nearly everything we consume.
And now that revenge travel & shopping is upon us and storage levels are running near record lows…

Gas stations are literally running out of gas 👀
This week, in 5 minutes, let’s breakdown Oil:

Setting the table 👉 How I think about the demand/supply dynamics
Recent Activist Action 👉 Board seats & competitor subsidies, but focus on the DELTA
Recent advances👉 Value rotation along with the rate movements

Let’s get started!
1.1/ Setting the table 👉 How I think about the demand/ supply dynamics

Trying to predict the individual political components of the energy trade I felt confusing and frustrating.

Give me an Advil and wake me up in a decade…
1.2/ ECON 101

Basic economics tells us that as long as demand exceeds supply, prices go up. As pricing goes up, more supply will come online, therefore reaching a new equilibrium.

All this jockeying for position and posturing are attempts at measuring the levels of supply.
1.3/ TOO MUCH

It is frequently beyond the control of even the most expert forecasters in the field. There are just too many moving pieces.

Instead, I like to understand the big pieces of supply, but shift more of my focus on the demand component.
1.4/ TAKE A STEP BACK

I like to first say, “what do I know to be true?” and “what important truth do very few people agree with you on?”

What I “know to be true” is that a lot of my friends are ready for some revenge travel, revenge shopping, and frankly - revenge spending.
1.5/ REVENGE

They have been cooped up for far too long, which has led to a spike in personal savings rates, which have sustained higher levels:

This money will be spent.
1.6/ OIL INCREASE

Increase in travel = increase in oil demand

Increase in consumption of manufactured goods = increase in oil demand

This leads me to the second part: “what important truth do very few people agree with you on?”:

Oil stocks are still great investments.
2.1/ Recent activist action 👉 Board seats & competitor subsidies, but focus on the DELTA

People claim that oil is in secular decline, and that’s probably right. But it doesn’t mean you can’t make money in the interim.
2.2/ CHEVRON

The battle against Big Oil accelerated even recently as a bunch of headlines hit the tape:

Chevron shareholders voted against management last month, directing the company to cut greenhouse gas emissions.
2.3/ EXXON

Exxon shareholders defied the executive suite and voted to install three independent directors with the goal of pushing the energy giant to reduce its carbon footprint.
2.4/ SHELL

Shell had a Dutch rule that it should slash its greenhouse gas emissions by 45% compared with 2019 levels by 2030. Shell said it would appeal, while environmentalists exulted that the decision set a precedent for concerted legal efforts worldwide.
2.5/ ESG

And I think that this ESG movement is a good thing but hear me out on this one… it could be an even better thing for oil companies that reinvent themselves.

When it comes to ESG ratings - all the alpha has been ‘priced in’ from a multiple perspective.
2.6/ ESG

Most of the leaders with higher ESG scores already got their market premium as they were recently bid up.

What companies have more to gain on the ESG front than oil companies? Focus on the second derivatives, the rate of change. Skate where the puck is going.
2.7/ RERATE

If they can show steady incline in their shift to carbon capture in production, or electric drilling, etc… the rate of change in their score could be a solid catalyst for a re-rate.
3.1/ Recent advances 👉 Value rotation along with interest rate movements

The “topic du jour” amongst the markets recently has been all the talk in the 10yr rate. To oversimplify, think of this rate as a gauge on the temperature of the overall economy.
3.2/ LOW RATE

A low rate is supportive of growthier assets and a higher rate is more supportive of value plays.

Over this time period, we’ve seen a huge shakeout in growth and rotation into value. The chart below is the iShares Russell 2000 Growth/Value ETFs.
3.3/ THE NUMBERS

If you look at Chevron, Exxon, BP, Shell: P/E ratios are in the 10-15x range, Price/Book ratios are 1-1.7x. Dividend yields range from 3% to 5%. FCF profile is strong. These are great value plays!
3.4/ What stocks do I own?

My paid subscribers know….

Two weeks ago, I added a junior energy position to my portfolio and it’s up +40%. Higher oil and liquid prices have led to significant free cash flow generation.
3.5/ NEWSLETTER

They have had a “step change” in debt reduction and are accelerating drilling. The chart keeps climbing! If you want to find out which one click below and upgrade to my PAID newsletter to see my entire portfolio. 👇

gritcapital.substack.com/subscribe
4/ YOUTUBE

Also, SUBSCRIBE to my YouTube channel for more insights!

• • •

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More from @GRDecter

Aug 8
LAST WEEK JEROME POWELL SAID DOWNSIDE RISK TO EMPLOYMENT ARE “REAL NOW”

WITH THE U.S IN A RECESSION ACCORDING TO SAHM RULE...

TIME FOR A 🧵
1/UNEMPLOYMENT RISING:

Up 4 straight months, now at 3-year high of 4.3% Image
2/JOB OPENINGS DECLINE:

As the economy bounced back from COVID, employers scrambled to hire enough workers.

But that’s flipped fast:

- March 2022: 2 job openings per unemployed worker
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Aug 4
I've been investing in the stock market for 18 years.

Here are 10 things I do when there's a correction and I feel like dumping my entire portfolio...

Time for a 🧵
1. Drink a Cherry Coke and ask myself WWWBD: What Would Warren Buffett Do?
2. Look at charts upside down
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Dec 19, 2023
📈EVERY Major "2024 Outlook" from the World's Top Banks, Asset Managers, Private Equity & Consulting Firms

Credit and thank you to Anthony Cheung for posting on Linkedin.

Let's dive in!

BANKS (US):

J.P. Morgan

J.P. Morgan Private Bank

Goldman Sachs

Goldman Sachs Asset Management

Morgan Stanley

Bank of America

Bank of America Private Bank

Citi

Wells Fargo

BNY Mellon

State Street

Lazard

T. Rowe Price.

TD Securities

Charles Schwab

RBC Capital Markets shorturl.at/eltPT
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t.ly/2bF1E
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rb.gy/nnjx81
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rb.gy/0guz6uImage
ASSET MANAGERS:

BlackRock

Amundi

M&G plc

Man Group

Wellington Management

Invesco US

Legal & General Investment Management (LGIM)

Schroders

Deutsche Bank (Wealth)

Allianz

AXA IM

PIMCO

Capital Group

Julius Baer (secular outlook)

Pictet

Vanguard

Fidelity

Cambridge Associates lnkd.in/eSxDA_bR
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PRIVATE EQUITY:

KKR

Apollo Global Management

Blackstone

BlackRock (Private Markets) lnkd.in/e_m6UE5F
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lnkd.in/eiGcGCfy
Read 6 tweets
Nov 7, 2023
Buffett, Ackman, Dalio, Cohen, Griffin...

BULL or BEAR?

What are the world’s wealthiest investors doing with their money right now?

Let's find out👇 Image
1. Ray Dalio: MILD BEAR.

“I don’t want to own debt, you know, bonds and those kinds of things…Temporarily right now, cash I think is good.” Image
2. Steve Cohen: BULL.

Says the US economy may fall into a short-lived recession this year before rebounding in the first quarter of next year.

He expects economic growth to jump next year and equity markets to rally 3% to 5%. Image
Read 12 tweets
Sep 12, 2023
“We’ve been spending money like drunken sailors”

JPMorgan CEO at Barclay's conference in NYC.

5 things you need to know 👇 Image
1. Quantitative Tightening is Coming.

"I just think people make a mistake to look at real-time numbers and not look at the future. And the future has quantitative tightening,"
2. Consumer is not alright.

“To say the consumer is strong today, meaning you got to have a booming environment for years is a huge mistake,"
Read 7 tweets
Jul 26, 2023
The Fed just raised rates by 0.25% - again

That’s the 11th rate increase in less than 2 years

Here’s what you should know 👇
The Federal Open Market Committee made a move that was expected by financial markets:

They raised the funds rate by a quarter percentage point.
The new target range now stands at 5.25%-5.5%, with the midpoint reaching levels unseen since early 2001.

The Fed Funds Rate was never this high in the years leading up to the 2008 Financial Crisis.

Read 11 tweets

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