The year 2014 has been a mixed bag for energy investors. While the first half was upbeat with crude oil surging past the $100 per barrel mark, the latter half was saddled with disappointment as the commodity plummeted to multi-year lows, dragging down stocks.
This is evident from the overall energy sector performance. While the year-to-date (YTD) gain of the S&P 500 (SPX) was about 13% (as of Dec 26, 2014), S&P 500 Energy (Industry Group) returned a negative 6.1%.
However, some stocks braved this price rout and came out with flying colors. Not only are their YTD returns in the green, but are also substantially higher than the S&P 500.
Before we handpick top 3 market beaters, let us take a quick look at the sector dynamics throughout the year.
Crude's Decent
The performance of energy stocks are largely tied to the underlying commodities – crude oil and natural gas. While natural gas averaged around $4 per Btu for the most part of the year, crude oil saw crests and troughs and the stock market rode high or dipped with it.
In the first half of the year, oil surged over $100 per barrel amid turmoil and supply challenges. Energy stocks gained handsomely, bringing in lump-sum profits.
In the second half, however, the commodity kept falling, breaking multi-year low records amid ample supplies and weak demand. Also, the international cartel of oil producers' – Organization of the Petroleum Exporting Countries (OPEC) – decision against oil output cut and weaker demand projection for 2015 prompted further declines. Crude oil has nearly halved from its peak position and is currently trading near the mid $50s.
Earnings Performance
Early 2014 was profitable for most energy companies. A large number of firms reported year-over-year earnings and revenue growth, benefiting from higher realizations. The overall sector reported 13.1% earnings growth in 2Q and 7.4% in 3Q.
Large integrated energy firms like Exxon Mobil (XOM – Analyst Report), ConocoPhillips (COP – Analyst Report) and Royal Dutch Shell plc
(RDS-A – Analyst Report), and upstream players like Devon Energy Corporation (DVN – Analyst Report) and Apache Corp. (APA – Analyst Report) contributed largely to this growth, being the biggest benefactors of the oil price boom.
