Another JACKASS speaks.
Equity Strategists: Sell Energy Stocks, Lehman Says (Update2)
Oct. 10 (Bloomberg) -- Investors should trim holdings of global energy stocks, such as Exxon Mobil Corp. and BP Plc, on concern oil demand from China may slow and analysts' earnings estimates might fall, according to Lehman Brothers Holdings Inc.
Ian Scott, Lehman's managing director of global equity strategy, lowered his recommendation on the industry to ``underweight'' from ``neutral,'' meaning investors should hold fewer of the shares than are represented in stock benchmarks. The downgrade was announced in a note to clients published today.
``Demand from China appears to be waning somewhat,'' the 40- year-old London-based strategist wrote. ``Recent extremely positive earnings revisions will now likely turn downward.''
Energy stocks, this year's best performers globally by far, had their biggest weekly losses in more than three years last week as oil prices retreated. Crude oil futures in New York have tumbled 11 percent since the end of August on speculation demand for the commodity may falter.
China's oil imports fell 6 percent to 8.8 million tons in August, the nation's customs agency said Sept. 12. In the first eight months this year, imports gained 3.9 percent to 83.1 million tons.
Analysts' earnings estimates for the oil industry have grown by 50 percent more than the market average in the past year, Lehman said. With the recent retreat in oil prices, ``oil sector earnings will have to be cut,'' Scott and colleague Gareth Williams, 34, wrote in the note.
Last Week's Losses
Morgan Stanley Capital International's World Energy Index sank 7.3 percent last week, its biggest weekly loss since July 2002 as oil futures slumped 6.6 percent. The gauge's drop spurred a 2.5 percent decline in the broader MSCI World Index.
The global energy benchmark is still up 26 percent this year, the best performance among 10 industry groups in the broader measure, as oil prices surged 43 percent in New York.
Lehman, the fourth-biggest U.S. securities firm by market value, ranked third for European equity strategy in a survey by Institutional Investor magazine this year. The brokerage doesn't rank among the top three firms in global equity strategy in surveys by either Institutional Investor or Thomson Extel.
The brokerage said investors should increase their holdings of technology stocks to compensate for the reduction in oil shares. It maintained a so-called ``overweight'' stance on global technology stocks.
Exxon, the world's largest publicly traded oil producer, has climbed 16 percent this year. Shares of BP, the second-biggest, have advanced 24 percent. Lehman did not mention any individual stocks in its report.
Others Turn Bearish
Lehman is not the only brokerage becoming more bearish on oil stocks. Neil McMahon, an analyst at Sanford C. Bernstein Co. in London, cut his recommendation on shares of BP, Chevron Corp. and six other energy companies on Oct. 6 as part of a prediction that profits in the industry may have peaked.
A team of strategists at JPMorgan Chase & Co., led by Abhijit Chakrabortti, disagrees, reiterating today an ``overweight'' recommendation on global energy stocks. The U.S. bank gave oil stocks the third-largest weighting relative to benchmarks in its recommended portfolio, trailing only so-called consumer-staple stocks and drug shares.
Scott joined Lehman in February 1995 from Postel Investment Management where he was a senior economist. Williams started at Lehman in August 2003 after working as a strategist at ABN Amro Holding NV. Neither was immediately available to comment.
To contact the reporters on this story:
Alexis Xydias in London at axydias@bloomberg.net.
Last Updated: October 10, 2005 06:03 EDT |
