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Origin Energy Ltd and Santos Ltd shares soar – Is it too late to buy?

Credit: greig davidson

It was a big five trading days for oil and gas shares last week with Origin Energy Ltd (ASX: ORG) and Santos Ltd (ASX: STO) enjoying gains of 19% and 21% respectively.

The rally in oil stocks comes after the oil price enjoyed another strong week of gains.

The price of a barrel of oil rose close to 10% last week and is now around 35% up from the 12-year low which the commodity hit less than two months ago.

For investors who have been caught flat footed and are now wondering if they have missed a chance to profit from rising oil prices there is both good news and bad.

The good news is that with the oil price still at under US$40 a barrel and stocks such as Origin and Santos still down over 50% despite last week’s rally there would appear to be a solid case for further upside in the medium to longer term in what is an inherently cyclical sector.

The bad news however is that there remains a significant supply-demand imbalance across global oil markets which is predicted to take until 2017 to level out.

What now?

It’s quite possible that we see a pullback in the oil price in the near term and a corresponding pull back in oil and gas shares.

As the saying goes however, “no one rings a bell at the bottom” so there is an equally good chance that the lows have been seen.

For investors, looking for opportunities within the energy sector, as always a focus on fundamental value is a better long term strategy than simply trying to pick the momentum.

Recent commentary surrounding Origin including talk of breaking up the business to improve shareholder value and a newly signed LNG agreement are certainly positives and could arguably help support a higher underlying valuation of the company than the current share price suggests.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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