"There are many today that feel oil prices are heading back to $40 a barrel. I’m not one of them. Oil prices are more likely to see $100 a barrel before we see $40. There are others that believe oil stocks are overvalued. I don’t agree. Oil stocks are still cheap and the recent pullback only makes them cheaper. As shown in the three P/E graphs below, after peaking in 1999, P/E multiples have fallen and are at an all-time low. Even though many energy stocks have doubled or tripled in price they still remain undervalued. This is because earnings have grown at a far faster pace than stock prices. Many energy companies like ExxonMobil, Chevron-Texaco, and Apache have seen their earnings triple or quadruple while their stock prices have only doubled. Price earnings multiples in the energy sector are close to the bottom of their historical range. This means they could have ample room for expansion. Finally, there are quite a few experts that believe the energy bull market is over. I disagree. We’re a long way from the final inning. We are going to need more oil and natural gas as demand continues to outstrip supply. We are going to need more alternative energy sources as non-OPEC oil production peaks. Finding and developing new energy sources takes time as does building infrastructure. The first energy train left the station long ago. The second train is about to embark. All aboard!"
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