"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," says Maurice FitzMaurice, portfolio manager of Fidelity® Select Energy Portfolio (FSENX).
According to FitzMaurice, the sector-wide sell-off early in 2020 has lowered the prices of energy stocks he thinks could still do well.
"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 says.
Of particular focus for FitzMaurice have been high-quality companies; firms levered to natural-gas markets, including pipeline and terminal operators; and businesses with a strong order backlog.
For example, in March and April, he added notably to the fund's stakes in both Chevron (CVX) and ExxonMobil (XOM), believing each had the financial flexibility to weather a protracted decline in the energy sector.
He also increased holdings in Cheniere Energy (LNG), which operates 7 liquefied natural gas terminals, with 2 more under construction. About 85% of its business is subject to long-term contracts. 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 (VST), 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 this date, Chevron accounted for 20.43% of the fund's assets, ExxonMobil 13.95%, Cheniere Energy 5.11%, and Vistra Energy 2.86%.
Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.
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