Growth stocks have been severely hit this year, with high inflation and rising interest rates weighing on growth stocks of all persuasions. But few stocks illustrate the dramatic shake-up at the top quite like the leading electric-vehicle maker Tesla Inc. (NASDAQ:TSLA). TSLA stock is down 69.5% year to date, taking a whopping $877 billion from its market cap. In comparison the S&P500 has fallen by a more modest 19.7% over the period. Tesla has moved from the fifth most valuable public company to thirteenth with a market cap of $385 billion. Tesla’s troubles are well documented, including Musk’s Twitter takeover and related distractions; Concerns that high inflation and rising interest rates will dampen consumer enthusiasm for EVs, as well as investor jitters about growth stocks. TSLA shareholders are furious with CEO Elon Musk, The Wall Street Journal reports, for his Twitter antics and goofs that have led to several stock downgrades. Meanwhile, hordes of customers are canceling their Tesla orders. “His personality absolutely fuels the Tesla brand. I look forward to living an Elon-free existence,” a biotech executive with a Model S lease told CNET. “There is no Tesla CEO today,” tweeted Gary Black, a hedge fund manager with ~$50 million in TSLA stock, to Futurism.
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But Tesla isn’t alone here: Most EV stocks have had a year to forget as rising costs, supply chain problems, increasing competition, and the threat of a potential recession caused many to sell off sharply.
Surprisingly, some Wall Street pundits have not given up on TSLA stock, urging investors to use the sell-off as a buying opportunity. That said, Citi has tapped TSLA as a bullish contrarian stock for 2023, while Baird analyst Ben Kallo still sees Tesla as the “Best Idea” stock of 2023. Meanwhile, Morgan Stanley says Tesla could extend its lead over its EV rivals in the coming year and has cited “valuation, cash flow, innovation and cost leadership” as key reasons for maintaining a buy-equivalent rating. Meanwhile, famed contrarian investor Cathie Wood, known for making big bets on past growth stocks when they fall, recently bought more than 25,000 shares of the EV giant.
By contrast, things could not have been any different for Tesla’s biggest fossil fuel competitor, ExxonMobil Corp. (NYSE:XOM). Exxon Mobil has seen the biggest rise in the S&P 500 this year, with the energy giant bouncing almost like tech stocks in the tech boom thanks to soaring oil and gas prices sparked by the energy crisis. XOM shares are up 72% this year, adding $190 billion to the company’s market value. The increase in Exxon’s market value has outpaced any company in the S&P 500, making Exxon Mobil the eighth most valuable stock in the S&P 500. That’s a remarkable jump considering it was only the 27th most valuable stock in the S&P 500 a year ago. By 2011, Exxon was the most valuable company on the S&P 500 apple inc (NASDAQ: AAPL) outperformed it in 2012.
While Citi has picked XOM as one of its bearish contrarian stocks for 2023, most Wall Street analysts are bullish on the stock, as indicated by its median price target of $118.89, which suggests 10% upside potential. The energy sector in general is expected to outperform the market again in 2023 and XOM should be fine considering it’s still cheap with a PE (Fwd) of 7.9. Back in October, Exxon increased its quarterly dividend by $0.03 per share to $0.91 per share, marking and sustaining the 40th consecutive year the company has increased its dividend Elite group of Dividend Aristocrats. XOM shares are now yielding 3.3%.
The prospects for the energy sector remain good. According to a recent research report from Moody’s, overall industry earnings will stabilize in 2023, although slightly below levels seen at recent highs.
Analysts note that commodity prices have fallen from very high levels at the start of 2022, but forecast prices are likely to remain cyclically high into 2023. This, combined with modest volume growth, will support strong cash flow generation for oil and gas producers. Moody’s estimates that US energy sector EBITDA for 2022 will be $623 billion, but will decline slightly to $585 billion in 2023.
However, analysts say that low capital spending, rising uncertainty about future supply expansion and high geopolitical risk premia will continue to support cyclically high oil prices. Meanwhile, strong export demand for US LNG will continue to support high natural gas prices.
The combined dividend and buyback yield for the energy sector is now approaching 8%, which is high by historical standards. Similar elevated values occurred in 2020 and 2009, which preceded strong periods. By comparison, the combined dividend and buyback yield for the S&P 500 is closer to 5 percent, making it one of the largest gaps in favor of the energy sector on record.
In other words, there simply aren’t better places for people investing in the US stock market to park their money if they’re looking for some serious earnings growth.
By Alex Kimani for Oilprice.com
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