Energy Selling Overdone

With the XLU down 15% from its high, you’d think energy prices were tanking. Instead we have $63 crude oil and $13 natural gas. While a warm winter would bring natural gas prices down considerably from here, earnings estimates for energy companies right now are probably based on no more than $50 oil and $7 natural gas, nowhere near where we are now.

Stocks like Chesapeake (CHK), Suncor (SU), and Plains (PXP) are trading at 8-10 times 2006 earnings. Plains is getting crushed today, in fact, on news of charges it will be taking from its hedging positions. However, that will be money well spent since it assured they could get high prices for their product in 2006.

Unless energy prices plummet from here, current earnings numbers will prove conservative. The volatility is hard to stomach, but these stocks are too cheap to ignore if you don’t have your 10% position in energy yet.