The Ukraine War Made Energy Stocks Winning Picks
It has been a tough year for European stocks, as Russia’s invasion of Ukraine, rising inflation, soaring energy prices, the European Central Bank’s aggressive rate hikes, and fears of a recession have relentlessly pummeled the continent’s economies.
The STOXX Europe 600 index has fallen 12.5% in 2022, underperforming the Dow Jones Industrial Average, which is down some 8%, but beating the S&P 500, off 18%.
There hasn’t been a whole lot of joy for investors, but some sectors, notably energy, have performed well, and the market’s volatility has offered up plenty of buying opportunities along the way for those with good timing and a bit of luck.
At the start of the year, this column highlighted United Kingdom energy giant Shell (ticker: SHEL.UK) for being positioned to benefit from energy prices staying high for some time. In January, neither Barron’s, nor anyone else, could have predicted just how high or for how long an energy crisis might last. Less than a month later, Russia—a major exporter of oil and natural gas to Europe—invaded Ukraine, triggering the continent’s energy plight.
The crisis was a boon for Shell. Soaring energy prices led to record profit of $11.5 billion in the second quarter, followed by its second-highest quarterly earnings ever in the third. The shares have climbed 31% since we picked them.
For those who missed out on the turbocharged rise of Big Oil stocks after the war began, Barron’s in May noted that a lesser-known European energy name—Norway’s Equinor (EQNR.Norway)—was worth a look, given its attractive payout. The company paid special dividends in the second and third quarters, hiking the payout to 70 cents per share in the third. The stock climbed 8% since we wrote about it, outperforming larger peers BP (BP.UK) and even Shell over the same period.
More buying opportunities emerged in the year’s second half as macroeconomic conditions deteriorated across Europe and much of the rest of the world. Falling demand for consumer electronics and new U.S. restrictions on semiconductor exports to China hit global chip makers particularly hard.
In October, Barron’s noted that the industry’s slump suggested that investors might consider buying shares of German chip maker Infineon Technologies (IFX.Germany), which had been dragged down with the rest of the sector. Infineon is a global leader in automotive semiconductors, especially for electric vehicles. As a result, the Munich-based company had less exposure to weakening PC demand and to mounting China curbs, and could benefit from the growing EV market, this column noted.
In fact, it’s not too late to still catch the Infineon rally, with analysts forecasting an average price of €36.01 ($38.15), some 19% over the Dec. 22 quote.
In these treacherous markets, not all our recommendations played out that well. After they fell more than 20% in the first month or so of the year, we suggested that the beaten-down shares of meal-kit delivery company HelloFresh (HFG.Germany) were undervalued and looked like a Buy.
However, the slump early in the year proved to be just the beginning of the pandemic winner’s price decline.
Rising inflation, leading to higher costs for ingredients, fuel, and labor, as well as waning consumer confidence hit the company in the second half of the year. The stock has plunged more than 60% since our column ran, to a recent €20.74. With European economies unlikely to improve anytime soon, investors will need to tread carefully in 2023.