When Royal Dutch Shell (NYSE:RDS.A) fell to a record losing streak through Jan. 24 and ahead of its quarterly earnings, that was a sign of things to come. The price of oil went on to close at new 52-week lows.
The giant conglomerates are now trading at a steep discount. Why is this happening?
RDS sold off prior to quarterly results because it already warned investors that profits would not meet expectations. It posted earnings a share of $0.37 (non-GAAP) as revenue plunged 17.8% Y/Y to $84.01 billion. The short-term troubles do not indicate long-term prospects. The stock now pays a dividend of ~7%. Exxon (NYSE:XOM) is equally attractive and pays a dividend of ~5.6%.
Markets are acting as if oil and gas have no demand. Instead, it is willing to bid Tesla (NASDAQ:TSLA) to the $600 level despite revenue growing a paltry 2% last quarter. EV sales are no more than 1% of the total automotive market. Oil supply reductions will bring the equilibrium back to levels that lift oil prices.
In the near-term, income investors will have to systematically average down in the energy sector. The bottom can come any time but may take weeks. So, buying up energy stocks with dividends of over 6% will pay off if the sector rebounds, too.
