Value investor Bill Nygren likes these two energy stocks as a bet on higher oil prices

Published Mon, Jul 12 20215:30 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Famed value investor Bill Nygren told CNBC on Monday he expects higher oil prices in the years ahead, creating an attractive opportunity to own companies that would benefit from such a development. In an interview on "Closing Bell," the portfolio manager and Oakmark Funds vice president pointed to EOG Resources and Apache-parent APA Corporation as two stocks to own. "We think both are very attractive stocks, and despite the increase in prices this year, [they are] really a generally an unpopular area for institutions," Nygren said. Energy is the best-performing sector in the S & P 500 year to date, rising 39.4% based on Monday's close. Real estate is second with a gain of 27%, followed by financials, which have advanced 25.6%. Energy has benefited from a rebound in oil demand after the coronavirus pandemic dented global economies and sharply reduced travel. West Texas Intermediate crude futures are up 76% in the past year, with oil settling at $74.10 per barrel Monday. While that's benefiting oil companies as of late, some market observers have wondered how durable the rally is, particularly as the industry still faces pressure to lower carbon emissions due to climate change concerns. That's a key reason some investors were losing confidence in the sector's ability to generate returns pre-pandemic. Nygren said he sees fundamental economic reasons pushing up the price of oil, which helps the companies involved in its production. "Our focus is much more on the long-term supply-demand picture, where demand keeps growing as global GDP grows and that means either supply has to grow or price has to go up, and the industry has just not spent enough on capital expenditures over the past several years to be able to respond to increase demand," he said. "We think the result is oil prices are headed higher." That's good news for oil-and-gas producer EOG Resources, which is "generally considered the best" of the U.S. exploration and production companies, Nygren said. Shares of the Houston-based firm ended Monday's session at $83.30 apiece, up 67% year to date. "If oil stays at the $74 a barrel that it's at today throughout 2021, we think they'd earn about $10 a share," Nygren said. "The stock sells just over $80. The stock would have to go up 50% from where it's at today to be at the price it was at four years ago, when oil was selling significantly less." APA Corporation has a "similar story" on the earnings front, Nygren said. "They also have this potentially giant asset in Suriname which isn't currently producing any income at all," he said. Although shares of APA Corporation are down 9.8% in the past month, the stock remains up nearly 44% year to date. Nygren has managed the Oakmark Select Fund since 1996 and the Oakmark Fund since 2000. In the past 12 months, the Oakmark Select Fund and the Oakmark Fund have both advanced around 64%, outpacing the S & P 500, which has gained 37.6% in the same stretch. Watch the interview with investor Bill Nygren above.

An oil well owned an operated by Apache Corporation in the Permian Basin is shown in Garden City, Texas, Feb. 5, 2015.

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Famed value investor Bill Nygren told CNBC on Monday he expects higher oil prices in the years ahead, creating an attractive opportunity to own companies that would benefit from such a development.