Huge Savings on Top-Notch Stocks
Due to the lack of interest from environmental, social, and governance (ESG) investors in the present market, numerous top-performing companies are being offered at large discounts. The weight of this trend is being felt by two enormous energy companies, TotalEnergies and Shell.
Differential valuation
Dan O’Keefe, manager of the Artisan Global Value Fund, described the situation as “absurd.” He emphasizes that there is no economic basis for these European firms to trade for less than half of what Exxon Mobil and Chevron, their American competitors, are worth, which are valued at 10.75 and 11, respectively, times projected profits. O’Keefe thinks that someday the disparity between American and European businesses will disappear.
European ESG Focus
The gap in valuation can be ascribed to the fact that European investors avoid investing in energy companies because they place a greater emphasis on ESG factors. O’Keefe asserts that ESG regulations prevent a sizeable percentage of the European asset management sector from investing in the oil and gas sector.
Getting Close
According to O’Keefe, if the reductions continue, the businesses will eventually be acquired or relocate to the US or Canada in order to boost their worth.
Strengths of Shell and TotalEnergies
Despite the present market trend, Shell and TotalEnergies both have certain advantages. While Shell owns the largest portfolio of liquid natural gas (LNG) among its competitors, TotalEnergies has one of the lowest cost energy portfolios and a low breakeven threshold. Both businesses also have strong financial standing, and they provide a sizable amount of their free cash flow to shareholders in the form of dividends and share buybacks.
Focus on Sustainability
Both TotalEnergies and Shell have vowed to run renewable energy companies and achieve carbon neutrality by the year 2050. However, some investors are worried about these companies’ profitability.
Worries about Stranded Assets
There are also worries that the switch to renewable energy sources may result in stranded assets for these energy equities. O’Keefe, on the other hand, thinks that the switch to renewable energy sources won’t happen quickly and won’t completely replace fossil fuels.
Outlook for energy prices
For these fossil fuel corporations, the forecast for energy costs is an important one. O’Keefe is one of several energy specialists who predicts that energy costs will either remain at their current levels or increase in the upcoming years as a result of the expansion of the global economy, particularly in light of China’s openings.