‘Some Energy Firms Can Thrive Amid Low Prices’, Says Fidelity’s FitzMaurice

Most energy stocks, which naturally move in tandem with the price of oil, have suffered a broad sell-off as crude oil prices plunged on concerns over the lasting economic fallout from the COVID-19 pandemic that reduced global demand.

Brent crude futures, the global benchmark for crude oil, has fallen about 40% so far this year to $40.6 a barrel on Thursday. The Brent crude prices in April fell to its lowest level since June 1999 to $15.98 a barrel but has rebounded since then. That meltdown caused a massive sell-off in energy stocks, with almost entire sector collapsing over 10% on the day.

However, Maurice FitzMaurice, portfolio manager of Fidelity Select Energy Portfolio, said the sector-wide sell-off in early 2020 has lowered prices of energy stocks that he thinks could still do well, the company noted in its research note.

“Exploration & production companies have been hurting because they need higher oil prices to thrive and, in some cases, survive, but that’s not true for all segments of the energy sector,” wrote Fidelity’s FitzMaurice.

“It’s created opportunities to buy shares of companies with resilient business models and financial flexibility for well below my assessment of fair value,” he added.

The portfolio manager further noted that he is focused more on high-quality firms, companies levered to natural-gas markets, including pipeline and terminal operators and businesses with a strong order backlog.

For instance, in March and April, he added notably to the fund’s stakes in both Chevron and ExxonMobil, believing each had the financial flexibility to weather a protracted decline in the energy sector.

According to the Fidelity note, FitzMaurice also increased holdings in Cheniere Energy, which operates seven liquefied natural gas terminals, with two more under construction. About 85% of its business is subject to long-term contracts.

Mr. FitzMaurice saw a strong opportunity for the company in the next decade and possibly beyond—as natural gas takes market share from dirtier fuels.
Lastly, he boosted exposure to independent power producer and energy trader Vistra Energy, partly because a large portion of its volumes in 2020 and 2021 are hedged against price declines, according to FitzMaurice.

“It’s a stockpicker’s environment,” affirms FitzMaurice, “and I’m seeing what I think are good stocks at good prices to hold for the long term.”

Fidelity Select Energy Portfolio held securities mentioned in this article on April 30, 2020. As of June 17, Chevron accounted for 20.43% of the fund’s assets, ExxonMobil 13.95%, Cheniere Energy 5.11%, and Vistra Energy 2.86%.