So far this year, oil stocks have been the standout performers in both the S&P 500 and FTSE 100. By contrast, the darlings of the stock market over the past 10 years, the FAANGs — Facebook (now Meta), Amazon, Apple, Netflix, and Google (now Alphabet), are all down. But with the long-term viability of the oil industry in doubt, are the days of Big Oil numbered?

2022 – the year of Big Oil

Recently published research by CMC Markets, highlights the huge chasm that has opened up between oil stocks and the rest of the stock market. This is summed up perfectly in the following table:

Occidental Petroleum has been the standout performer in the S&P 500 in 2022. Soaring oil prices have turned the company into a cash generating machine. Its extraordinary gains could have been helped by the Warren Buffett effect. Berkshire Hathaway owns 7m of its shares.

In the UK, both Shell and BP shareholders have profited handsomely from rising commodity prices. This includes Glencore, whose main source of revenue is coal.

The performance of such stocks is in complete contrast to the technology sector. In 2021, it was the unprofitable tech companies that first began to falter. Now, in 2022, the contagion is spreading to the mega-cap growth stocks. Investors are waking up to the reality that fundamentals do matter after all.

The bull case for oil

History demonstrates that as oil hovers around the $90-$100 range, investment should be flowing into the sector. After all, that’s what happened during the shale boom of 2014, when oil hit $100. A similar picture emerged in the run up to the global financial crisis, when it hit $150.

Today, as a percentage of GDP, capex investment in the commodities sector is at a near 20-year low. The predominant reason for this underinvestment, I believe, is the rise of the environment, sustainability and governance (ESG) agenda.

Yet significant tailwinds for commodities means that oil is likely to be in high demand during the next decade. For example, the pandemic and increasing geopolitical tensions have put significant strain on supply chains. Many companies are actively moving their manufacturing operations away from China. In such a scenario, commercial construction in the US and UK markets could boom.

The bear case

The case against oil fundamentally rests on it being a dying industry. As the world reduces its reliance on hydrocarbons, the industry could be left with stranded assets. But the fundamental unknown is the time frame over which this will happen.

The pandemic brought to the fore problems that, in my opinion, had been there for some time. For the last 15 years, human and capital investment has flowed into the tech sector. However, the rise of inflation changes everything.

During periods of high inflation, history shows that commodities do well. Rising interest rates will eventually reduce demand. But until the supply side is dealt with, I see oil stocks continuing to outperform the general market. That’s why, on any dips, I continue to add to my commodities stocks.

The post The unstoppable rise of Big Oil, or a bubble primed to burst? appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Andrew Mackie has positions in Glencore, BP and Shell plc. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Personally, I think owning a selection of FAANGs is a great idea. That said, I wouldn’t buy all five for my portfolio today. I’d only buy these three.

Apple

The first FAANG stock I’d buy for my portfolio today is iPhone maker Apple (NASDAQ: AAPL). It’s currently trading about 15% below its all-time highs.

Apple, in my opinion, is a world-class company. Not only does it consistently generate growth, but it also generates a high level of profitability. Additionally, it has a strong competitive advantage due to its brand power and ecosystem.

While Apple sports a market-cap of $2trn+, I believe the company has the potential to grow larger over time. Looking ahead, it plans to be a major player in both healthcare and autonomous driving – two industries with massive growth potential.

Apple stock isn’t without risk. The industries it operates in are highly competitive. There’s no guarantee the iPhone will be popular forever. However, overall, I think the long-term investment case is attractive. I see the stock’s price-to-earnings (P/E) ratio of 27 as very reasonable, given the company’s track record.

Alphabet

The next FAANG stock I’d buy is Alphabet (NASDAQ: GOOG). It’s the owner of Google and YouTube and the largest digital advertising company in the world.

The reason I’m bullish here is that the digital advertising market looks set for huge growth in the years ahead. In 2019, the online advertising market was worth around $300bn. By 2025 however, it’s expected to be worth nearly $1trn. This market growth should provide powerful tailwinds for Alphabet.

One risk I’m keeping a close eye on here is regulatory intervention. Currently, major global regulators have Big Tech firms in their sights. This could impact the investment case.

All things considered however, I think the risk/reward proposition is attractive. The stock’s P/E ratio of 29 isn’t excessive, to my mind.

Amazon

Finally, the other FAANG stock I’d buy is Amazon (NASDAQ: AMZN). I like Amazon for two reasons. Firstly, it’s a leader in online shopping. This industry is set for huge growth over the next decade.

Secondly, it’s a leader in cloud computing. This industry is also set for enormous growth over the next decade. According to MarketsandMarkets, the global cloud computing market size will grow to $830bn+ by 2025, up from $370bn last year.

Now, this stock is expensive. Currently, its P/E ratio is about 64. That adds risk. If growth slows, the stock could fall heavily.

But given Amazon’s dominance in two high-growth industries, I don’t think I can afford to ignore the stock.

What about the other two FAANGs?

As for Facebook and Netflix, I have some reservations about these FAANG stocks.

Facebook is growing rapidly and looks set to profit from the digital advertising boom. However, there’s a high level of distrust towards the company. So, I don’t see it as a buy.

Netflix does have an amazing product. Yet I think it’s likely to face intense competition from Amazon and Disney in the years ahead. And the costs of producing top shows is very high. So, it’s also isn’t a buy for me.

The post The 3 FAANG stocks I’d buy today appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Apple, Amazon and Alphabet. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (C shares), Amazon, Apple, Facebook, Netflix, and Walt Disney and recommends the following options: long January 2022 $1920 calls on Amazon, short March 2023 $130 calls on Apple, long March 2023 $120 calls on Apple, and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.