Energy sector poised for multi-year bull market

Experts highlight robust fundamentals and dispel myths about the energy sector, predicting significant gains

Energy sector poised for multi-year bull market

In a recent exclusive feature with Wealth Professional, Eric Nuttall, senior portfolio manager at Ninepoint Partners, discussed the robust fundamentals supporting energy companies and why he believes the sector is poised for significant gains.

Despite widespread misconceptions, Nuttall remains confident in the long-term prospects of energy stocks, identifying key false narratives that have led to their undervaluation.

Nuttall pointed out that investors have shifted their focus to trendy sectors like technology and artificial intelligence, resulting in negative sentiment and outflows from energy funds. “Energy funds in North America have had negative outflows all of this year and through much of last year,” he explained.

He addressed three primary misconceptions: weak oil demand due to recession fears and the rise of electric vehicles, concerns over surging US shale production, and instability related to OPEC+ market strategies.

Nuttall noted, “Predictions from the International Energy Agency suggest that oil and hydrocarbon demand will peak later this decade. These factors distort perceptions of the fair value of oil and energy companies.”

Highlighting the economic factors driving oil demand, Nuttall emphasized the impact of population growth and rising living standards in non-OECD countries. “The real drivers going forward are population growth in non-OECD countries combined with rising living standards,” he said.

He also pointed out that the energy transition will take longer than anticipated, with traditional energy sources like natural gas playing a crucial role. “The majority of the world is focused on energy accessibility and energy affordability, not decarbonization,” Nuttall emphasized.

Nuttall discussed the strong performance of Canadian energy companies, which, despite trading at depressed valuations, have deep inventories and strong balance sheets.

He believes these companies offer the best opportunities, especially as they focus on moderating growth, maximizing free cash flow, and increasing share buybacks.

“We’ve been huge champions of companies moderating growth, focusing on maximizing free cash flow, and using it to meaningfully buy back their shares,” he stated.

Nuttall concluded that the energy sector is in a multi-year bull market, driven by factors such as increased electricity demand from AI and a global focus on energy accessibility and affordability.

He asserted, “I believe we’re in a multi-year bull market not just for oil but for natural gas, for coal, just energy in general.”