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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: excardog who wrote (77763)	11/2/2000 4:42:22 PM
From: excardog	Read Replies (3) \| Respond to of 95453

Fund managers turn cautious on energy stocks: -------------------------------------------------------------------------------- Thursday November 2, 3:24 pm Eastern Time Some fund managers turn cautious on energy stocks By Andrew Kelly HOUSTON, Nov 2 (Reuters) - Solid gains for energy stocks have provided a measure of solace to investors as other sectors lagged this year, but some fund managers are turning cautious on energy amid signs that oil and natural gas prices might have peaked. ``I've become worried about the price of the commodities ... We've gotten a little more defensive,'' said Larry Tedeschi, energy analyst with One Group of Columbus, Ohio, which manages some $135 billion in mutual funds and private portfolios. U.S. oil and gas stocks have chalked up healthy gains this year, driven by soaring prices for the underlying commodities. Standard & Poor's exploration and production index (^SPOILP - news) and its oilfield services index (^SPOILW - news) are showing year-to-date gains of some 30 and 33 percent respectively. The S&P index for the big integrated international oil companies (^SPOILI - news) is up a less impressive 4 percent, but that still compares favourably with a year-to-date loss of about 3 percent for the multi-industry S&P 500 index (^SPC - news). Benchmark U.S. oil and natural gas prices remain strong in historical terms at around $33 per barrel and $4.80 per thousand cubic feet respectively, but both have retreated from recent peaks of over $37 and almost $5.80. OIL AND GAS PRICES HEADED LOWER? Some fund managers believe that while oil and gas prices might stay firm in the short term, they are probably headed lower in the medium to long term. ``They're at a level where we would anticipate they shouldn't be going much higher and I would expect oil prices to decline at some point next year,'' said James McElroy, Chief Investment Officer at Hibernia National Bank in New Orleans. Hibernia's mutual funds unit manages over $1 billion in assets, including about $400 million in equities. Tedeschi, who selects stocks for One Group's value funds, has pared back holdings of oilfield service stocks and increased his exposure to integrated oils such as Exxon Mobil Corp. (NYSE:XOM - news). ``If you have a negative outlook on the price of the commodity, Exxon Mobil will be one of the safest places you can be,'' he said. Unlike pure-play ``upstream'' oil and gas exploration and production stocks, the major integrated oil companies have ``downstream'' refining, gasoline marketing and chemical operations that tend to mitigate the effect of a decline in oil prices. As oil prices plummeted in 1998, for example, Exxon, which had not yet merged with Mobil, saw its stock rise 19.5 percent. By contrast, Apache Corp. (NYSE:APA - news), a Houston-based exploration and production company whose stock has performed strongly in 1999 and 2000, took a 28 percent hit in its stock price in 1998. TECHNOLOGY TO REGAIN LEADERSHIP McElroy at Hibernia said he was pleased with energy's contribution to his portfolios this year but less satisfied with the performance of his technology holdings. The technology-heavy Nasdaq composite index (^IXIC - news) is off some 16 percent this year but McElroy expects a reversal in the relative performance of the two sectors next year. ``My hunch is that we're going to see better action out of technology than out of energy,'' he said. Claude Cody, a senior fund manager with Houston-based AIM Funds, which manages some $180 billion in assets, said he remains positive on energy stocks, based on his conviction that recent tightness in the balance of supply and demand for oil and natural gas is not just a temporary phenomenon. ``I'm saying were still going to be in a tight market at least a year from now, probably two or three years from now.'' he said. Within the energy sector he favours gas-oriented exploration and production stocks as well as oilfield service stocks which he expects to be among the prime beneficiaries as producers step up efforts to keep pace with demand for oil and gas. Cody declined to comment on individual stocks but the oilfield services group includes names such as Halliburton Co. (NYSE:HAL - news) and Baker Hughes Inc. (NYSE:BHI - news). Both Cody and One Group's Tedeschi expressed enthusiasm about stocks such as Enron Corp. (NYSE:ENE - news), Dynegy Inc. (NYSE:DYN - news) and El Paso Energy Corp. (NYSE:EPG - news) which have soared this year, reflecting strong earnings growth in new energy businesses such as wholesale gas and power trading and independent power production. However, the share price appreciation already seen for this group has left valuations at lofty levels, making it difficult to justify extending positions at current prices, they added.