SAN FRANCISCO — July’s stock gains, which have positioned the Dow industrials for their best monthly advance since 2002, are prompting stock pickers to focus on sectors that came late to the party and could now try to make up for lost time.
Energy, which is on track to post the worst performance of the 10 S&P 500 industry groups, is one such sector.
“We’re focusing very closely on energy investment,” said Bill Greiner, chief investment officer of Kansas City-based Scout Investment Advisers, which manages $6 billion. His team is forecasting that oil could rise to $75 or $80 a barrel by the end of 2009, which could set energy companies up for easy year-over-year comparisons in the fourth quarter. “We think we’ll see pretty good numbers come out of the oil patch between now and year-end,” he said.
July started out under a cloud of worries that the rally that started back in March had gone “too far, too fast.” It has turned out to be a cracker-jack month for stock investors, thanks largely to corporate results that deteriorated a little less sharply than analysts expected.
The Dow Jones industrial average is set to make its best month since October 2002 with a more than 8 percent gain.
On Friday, the major equity benchmarks posted modest gains as investors digested a mixed- bag report on the U.S. economy, which contracted at a slower rate in the second quarter but more severely than previously estimated last year.
Among industry groups, the spoils have gone to cyclical stocks. As of the close of trading Thursday, materials outperformed the S&P 500’s 7.3 percent advance, with a gain of 12.3 percent. Tech stocks gained 9.4 percent, and consumer discretionary stocks, 9.2 percent.
Gains in materials and other-resource-intensive stocks are typical of a market whose economy is exiting a recession, says Greiner. The surprise is that energy companies didn’t join other resource-dependent stocks beating the broader market.
Analysts say underperformance in energy stocks stems from a lackluster showing in energy prices — oil is set to end July nearly unchanged, while natural gas has fallen 6 percent — plus disquieting comments from large companies.
BP PLC’s chief executive said last week, “We see little evidence of any growth in demand and expect the recovery to be long and drawn out.” Chevron Corp. on Friday said second-quarter profit fell 71 percent, one of several oil majors to report double-digit profit declines from the year-ago period, when oil prices headed past $100 a barrel.
Lawrence Creatura, a portfolio manager at the value-oriented arm of $400 billion Federated Investors, says the retreat in some energy prices and an optimistic outlook for energy demand has made for good pickings among oil and gas stocks.
His team has been increasing exposure to natural-gas companies, lured by the sharp drop in natural-gas prices compared with oil.
