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Financial Indices: And the Rich Get Richer

Energy investors get great stock performances–plus cash!
September 1, 2005

Oh, to have foreseen this spike in oil prices and to have dumped all our money into energy stocks. More precisely, to have realized that when everyone thought the easy money had already been made, there were still some pretty easy returns sitting right there on the table.

Energy stocks again led our large-cap index, in the month ending July 8, and were outpaced in the small-cap index solely by biotechnology issues. The only mystery to us is the continuing dismal performance of First Calgary Petroleums–a stock that’s become almost comical in its ability to act as a contrary indicator to its own sector.

So what are these lucky energy companies doing with all their newfound cash? Interestingly enough, they’re putting it aside for a rainy day. According to Arnie Berman, analyst at Creditsights, energy companies in the SP 500 saved 15 cents of every dollar in the past year–a rate five times as high as the average company’s. Berman suggests that the smart money in the sector (i.e., its executive suite) either doesn’t think the high prices will endure, has limited confidence in its own long-term growth prospects, sees few opportunities to spend that money wisely, or all the above.

The good news for investors: in lieu of drilling too many new holes, these companies have been giving that money back to shareholders in the form of dividends, share repurchases, and debt payments.

The broader market has held up even as oil prices have shrugged off gravity. The SP 500 barely outpaced the TR Large-Cap 100 in notching a 1.1 percent gain through July 8, and our small-cap index was not far behind. All three indices are in the black for the past 12 months, with small stocks showing a 24.9 percent gain. – By Duff McDonald

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