You might think it's a bid of a bold call, but some experts believe ASX oil-exposed stocks could be the next ASX tech stars.
While its tech stocks like the rocketing Afterpay Ltd (ASX: APT) share price and Xero Limited (ASX: XRO) share price that have been soundly beating the S&P/ASX 200 Index (Index:^AXJO), oil stocks may replace the tech rally in 2021.
ASX energy stocks have underperformed this year as the oil price crashed. Many are also shunning the sector due to environmental concerns.
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ESG investing clashes with ASX energy stocks
The snub that Prime Minister Scott Morrison had to endure at the UN Climate Summit will motivate even more investors to embrace Environmental, Social, and Corporate Governance (ESG) investing.
Even the big banks are getting in on the act with Australia and New Zealand Banking GrpLtd (ASX: ANZ) recently promising not to fund any fossil fuel projects. This coming from an industry that isn't known to have a conscience!
Meanwhile, several high-profile global fund managers, including BlackRock, Inc. (NYSE: BLK), are moving away from investing in carbon polluting companies.
Why ASX energy stocks could replace the tech boom
But some experts believe there are undervalued investments in the energy sector, even for ESG conscious investors, reported the Australian Financial Review.
"Oil is still a big part of the index, industrials is still a big part, materials, chemicals, steel, all these things," the AFR quoted Janus Henderson portfolio manager, Tom O'Hara.
"You're going to have to start owning these things in order to protect your portfolio and deliver performance."
How to pick the best ASX energy stocks for 2021
The point he was making is that one shouldn't paint all energy stocks with the same brush. To do so means missing out on ASX stocks that can deliver outsized returns in 2021.
So how can ESG investors have their cake and eat it? The key here is to look for stocks that are transitioning to a cleaner future or those that are developing lower carbon projects.
European oil and gas giants are moving with the times and bolstering their green credentials. Examples are the Royal Dutch Shell Plc (LON: RDSA) share price, the BP plc (LON: BP) share price and Total SE (EPA: FP) share price.
There are two ASX stocks that also stand out in this regard, reported the AFR. These are the Santos Ltd (ASX: STO) share price and Woodside Petroleum Limited (ASX: WPL) share price.
Where value investing meets ESG
Both stocks enjoyed a robust bounce in November as the oil price recovered from the COVID‐19 meltdown. But the WPL share price is still nursing a 33% loss and the STO share price an 18% loss since the start of 2020.
This leaves them plenty of room to rally. Thrown in the fact that there's a limited pool of ESG friendly ASX energy stocks to pick from, chief investment officer at Bell Asset Management, Ned Bell, told the AFR he thinks there could be a scramble in 2021 to snap up such stocks.
