When Wall Street insiders talk, it is sometimes helpful to hear them out. A few gems may be gotten from their extensive reports, assuming you can get through them without dozing off into deep sleep. Anyways, analysts at The Goldman Sachs Group (NYSE: GS) have something to share with you today.
While some may be celebrating the recent declines in the price of oil, which amounted to downside moves of more than 22.0%, its sudden rally to $75.0 may be proving Goldman's theory correct. In short, there is a projection for oil to go as high as $100.0 a barrel in 2024, and here's what that means to you:
Forget about trying to save at the gas pump; nobody got rich by saving money anyway. Instead, focus on supercharging your portfolio with alternative energy stocks like Enphase Energy (NASDAQ: ENPH). This will likely call for investment dollars once the oil becomes 'too expensive.'
A game of dominoes
Before you jump to conclusions, whether bullish or bearish, it is essential to understand the game plan here. Remember, it is such a good gameplan that even the company's CEO has been buying stock ahead of time.
You see, because oil is cheap - relative to historical prices - most companies and consumers don't really mind keeping oil as their first choice for energy solutions. Unsurprisingly, lower oil prices spur economic activity, as seen in the recent quarter of U.S. GDP growth.
But what happens when oil inevitably returns to higher prices? Inevitably because the world of commodities is ruled by cycles. Well, it won't mean the end of the world as you know it. Still, it will cause consumers and businesses to seek alternative energy sources to fulfill their needs.
When oil goes up, natural gas and other commodities also tend to go up; remember, that world is all about cycles. That means that the average electricity bill could be higher for many people if that happens.
Think about this quickly: what is the next most popular/convenient energy source for residences today? If you guessed solar energy, congratulations, you won at bingo!
Because that occurrence is almost a given in the eyes of many experienced investors, some have been jumping into this coming wave with an absolutely bullish view. Starting with analysts.
Check this, then that
With a price target of $170.1 a share, analysts imply that this stock needs to rise by as much as 27.0% from today's prices to meet these projections. However, these targets are based on current estimates; where will they go once Enphase reports the benefits of added business?
But before you speculate where this stock could go, check out the price action it has delivered in the past year. This stock is trading at 42.0% of its 52-week high price, which stood as high as $230.0 a share. A recovery to its 52-week high could almost double the upside analysts see today.
Checking the other end of the spectrum, oil giant Exxon Mobil (NYSE: XOM) has declined by 12.4% in the past quarter alone, right along with a 5.6% decline in the Energy Select Sector SPDR Fund (NYSEARCA: XLE), which mostly holds these same oil names.
While Exxon stock is trading at a 10.1x price-to-earnings ratio, Enphase is going for a 33.7x multiple, meaning that the markets see something big coming for the stock to justify them overpaying for a name that has underperformed so badly during 2023.
Knowing what you know now, is it surprising to learn that Enphase's CEO bought up to 1,118 shares of stock as recently as November 16th this year? By the way, that purchase equated to a total investment of $100.8 thousand.
Understanding that the stock has risen since the purchase, it wouldn't be too far-fetched to expect further buys, especially when the winds of demand start sweeping into the solar industry.
Keep in mind, last but not least, that the VIX is at its lowest level since 2019, and a sudden pop in volatility could hurt stocks. Considering that Enphase is trading at 42.0% of its 52-week high, the downside this name faces is not nearly as high as the upside it proposes.
If there's one fundamental relationship you take away from this, let it be that the last time oil rose in price from the $70s a barrel all the way to $110.0 a barrel, Enphase stock raced to its all-time high price of $339.9 a share. History may not repeat itself, but it sure does rhyme.
