Oil company stocks continued to churn Thursday as Wall Street wrestled with the question of who has the smarter money--the investors who are buying oil now or those who are selling.
While Mobil stock fell 50 cents to $65.875 and Chevron was flat at $76.875, Atlantic Richfield inched up 12.5 cents to $135.875, and Amoco rose 50 cents to $56.75.
Many investors who own the stocks are too petrified to hold on, fearing that oil prices could collapse if the United States successfully contains Iraq in the Mideast. On the other side, investors who don't own the stocks are worried that they'll miss another major move upward if the Iraq situation ensures higher oil prices ahead.
Trying to predict the outcome in the Mideast, however, is nothing more than an exercise in gambling with poor odds, analysts admit. Investors who are mulling whether to jump into or out of oil stocks would be smarter to look at the fundamentals and make the call based on a two- or three-year view, many experts say.
If you take that approach, you've got a lot more to work with. For example:
* Based on analysts' estimates of earnings per share for 1991--estimates not yet adjusted for the Mideast turmoil of the past week--many major oil stocks are trading for 12 or 13 times earnings. Meanwhile, the market price/earnings (P/E) ratio on 1991 estimated earnings is 13, using average Wall Street expectations for the Standard & Poor's 500 index. So oil stocks are no more expensive--or cheaper--than the market as a whole.
* Oil stock dividend yields remain pretty generous. The yield on Texaco stock now is 4.8%; on Chevron, it's 4%. In contrast, the S&P 500 average yield is 3.6%. If you have to wait for a stock to move, a hefty dividend at least helps make it easier to be patient.
* Even before the Iraq crisis developed, sentiment toward oil stocks had been favorable. Most experts had expected growing energy demand--and rising prices--throughout the 1990s, after the oil bust of the 1980s. Just look at the spread of capitalism in Eastern Europe. A lot of oil and natural gas will be needed to fuel the growth of those new market economies. And a lot of new wells will have to be drilled in the United States even to make a dent in our dangerous growing dependence on foreign oil.
