If the rapid rise in the oil price is tempting investors to add more energy exposure to their share portfolios, AFR Smart Investor suggests readers should pick their targets carefully.
According to Skaffold, the majority of Australia’s listed oil and gas plays have run far beyond what their businesses are worth.
Australian energy stocks are “well overvalued”. Oil Search (OSH) is trading at a 90% premium to Skaffold’s intrinsic value estimate, Santos (STO) at a 80% premium and New Hope Corporation (NHC) at a 78% premium.
Value investors tend to shy away from resources stocks due to the cyclical nature of the sector, AFR Smart Investor wrote in the October 2013 print edition.