In Battle of Oil vs. Mining Stocks, Oil Wins

A developing slowdown in the global economy indicates that global oil & gas stocks should outperform mining stocks.

Both global energy and mining stocks have bounced back strongly in the past month after the sharp May correction.

Relative to their underlying commodity prices, they have also risen by similar magnitudes since the global equity advance began in March 2003.

However, mining stocks are more geared than oil stocks to the global growth cycle, making them more vulnerable as global growth decelerates.

Additionally, mining stocks are also more volatile than energy stocks, which further undermines their appeal in light of rising overall equity market risks.

Highly optimistic long-term earnings expectations also pose a hurdle for mining stocks.

[Editor's note: Energy Funds and ETFs include IXC, IYE, OIH, PXE, PXJ, USO, and XLE).

Comments

[Faisal Laljee:]

I am not sure your charts corroborate your thesis. It looks like mining stocks have a higher earnings growth and the same P/E as oil stocks. Then how can oil stocks be better going forward?

-- Faisal Laljee

2006 Jul 17 09:05 PM