Bernstein Analyst Says Energy Stocks Beat Treasuries: Why He's Buying Exxon and Chevron

On a recent episode of The Real Eisman Playbook, Bernstein Research senior energy analyst Bob Brackett made a bold claim that could reshape how income investors view oil majors. "Don't compare the yields you get from a commodity company to government yields. Compare them to TIPS. These are inflation protected," he told host Steve.

Recommendation Change

Brackett did not formally change his rating, but stated he is personally buying shares of Exxon Mobil (XOM) and Chevron (CVX). He believes their current yields exceed those of Treasuries after adjusting for inflation.

Analyst's Rationale

Brackett argues that major energy companies can pass inflation through to consumers via higher oil and gas prices, making their earnings and dividends more stable in an inflationary environment. This makes them an attractive alternative to TIPS, which currently offer low real yields.

Context

Brackett's comments come as Exxon and Chevron trade with dividend yields around 3-4%, compared to the 10-year Treasury yield near 4.5%. However, dividends tend to grow over time, while bond payments are fixed. Other Wall Street analysts are divided between recommending energy stocks as an inflation hedge and favoring lower-risk government bonds.

What We Conclude

Brackett's views offer an interesting perspective for income investors, but they do not constitute an official buy recommendation. Investors are encouraged to compare inflation-adjusted returns and risks before making any decisions.