This blog is part of a new series on Institutional Investor entitled Global Market Thought Leaders, a platform that provides analysis, commentary, and insight into the global markets and economy from the researchers and risk takers at premier financial institutions. Our first contributor in this new section of Institutionalinvestor.com is AllianceBernstein, who will be providing analysis and insight into equities.
When energy prices surge, large, integrated oil companies are often the first stop for investors. But there can be less obvious—and, we think, more lucrative—ways to play rising energy prices than jumping into Big Oil stocks, which are often the first to rise and see future upside potential diminished.Specialized corners within the energy industry can be one place to start because they often come late to the party. One such corner today lies in oil-field services companies that offer the sophisticated, high-value-added technologies that exploration and production companies need to tap harder-to-access sources of oil, such as deep-sea wells or oil shale. These unconventional sources of oil are badly needed now because the state-run oil companies in the Middle East and elsewhere that control the vast majority of the world’s oil reserves have been keeping output virtually flat, yet demand keeps growing. Recent political uncertainty in the region has heightened concerns about supply interruptions. Our growth equities analysts expect revenues in the global oil-field services industry to grow by roughly 12% this year.
There are also opportunities in independent producers that are leveraged to regions in which advanced extraction technologies are meaningfully expanding output from previously lower-yielding sources, including some within and near the US.
Outside the energy industry, higher oil prices have boosted the opportunity in companies that produce automotive technologies to meet increasingly strict fuel-efficiency and emissions-control standards in many countries. For example, turbo-charged engines and dual-clutch transmissions (DCTs) can meaningfully improve gas mileage, which in turn can lower a vehicle’s carbon footprint. A six-speed DCT can get roughly 10% more miles per gallon than a conventional five-speed automatic transmission, according to a BorgWarner report.
Another example is start-stop technologies, which shut off the engine when a car or truck is idling. Originally a feature of hybrid electric vehicles, start-stop capabilities have begun to find their way into vehicles with only an internal combustion engine. These technologies were initially limited because most batteries lose a lot of energy in the process of shutting down and restarting, but next-generation absorbent glass mat (AGM) batteries are far more efficient during on-and-off cycles. We expect unit volume in the AGM segment to grow to 10 times its current size over the next five years.
Like energy companies, investors in energy-related stocks should be digging deeper for a payoff.
Note: All estimates and forecasts cited are as of the date of this post, and subject to change.
Scott Wallace is the Team Leader—US Large Cap Growth at AllianceBernstein
The views expressed herein do not constitute reseach, investment advice or trad recommendations and do not necessarily represent the views of all AllianceBernstein portfolio managment teams.
