Was that the bottom?
- Dec 20, 2020 11:59 am GMT
Moonlight Graham told Ray Kinsella in the classic 1980s baseball film Field of Dreams, “you know we just don’t recognize the most important moments of our lives while they are happening.”
The same goes for financial markets. Right when it seems like a paradigm shift takes place, mean reversion can strike. Did that just happen in the energy space? I don’t know. You don’t know. All we can do is analyze the market and look at the charts.
I embrace both fundamental market analysis and technical analysis. I think both are useful tools to have in the toolbox as an analyst, risk manager, and portfolio manager.
A remarkable moment took place just a few weeks ago – shares of both NextEra (NEE) and Zoom (ZM) overtook ExxonMobil (XOM) in market cap.
I took some heat on Twitter for posting that Zoom was worth more than ExxonMobil – many refused to acknowledge that a once tiny, niche firm like Zoom Inc could be more highly valued than what was the biggest company in America during the mid-2000s. Regardless, that was the case.
Another turning point that was perhaps more apropos was NextEra rising above Exxon. NEE is in the Utilities sector while XOM is of course in the beaten-down Energy sector. So for the first time in modern history, a Utilities firm (focused on renewable energy) was the biggest Energy-related company in the S&P 500.
Where do we stand now? A little bit of mean reversion indeed took place over the last two months. XOM’s market cap has surged from $130 billion to $180 billion as WTI has climbed back from the low-mid $30s to near $50. NEE’s market cap has held steady just shy of $150 billion. And that wild-child ZM stock has given back some of 2020’s gains – its market cap has dropped from $160 billion to $115 billion as investors grow optimistic of a 2021 ‘return to normal’ trade.
It’s interesting to read about both sides of the fence – does the ‘value’ investing theme make a comeback with energy stocks recovering from just 2-3% of the S&P 500 back to a respectable weighting? Or has the world indeed changed in the last year so that companies with few tangible assets will forever be the most highly valued? And will the 20s be roaring for renewables-focused companies like NextEra.
Investors have been placing their bets this year. I think we all can acknowledge that renewables are here to stay.. dare I say, “if they build them, they (investors) will come?”
Stay tuned in 2021 for how the dust settles on some of these monster moves. The trend of the last decade is in the favor of long-tech, short-energy, but winds could be a-changing.
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