Unsexy Equinor. My stock buy this week

Dark clouds over oil. But the time to buy may be now

Hi all, hope you’ve had a nice week.

And hope the US credit downgrade didn’t put you in a bad Moody.

For this week’s investment, I’ve added more unloved, unwanted oil to my fund.

More Equinor (EQNR).

Here’s the gist of this week’s letter:

• markets still shunning oil and crushing on companies like Netflix

• Netflix = half the revenue and 10x the price vs Equinor

• the time to buy Netflix was in a down-cycle

• maybe the time to buy oil is now?

Read on.

Opposite

I invest each week.

And each week, I give some thought to cycles. Channeling my inner Howard Marks.

Trying to figure out where we are in cycles, and what moves to make because of it.

In theory, this cycle stuff is pretty easy. Pretty intuitive.

Avoid the stuff that’s shot up. Buy the stuff that’s pushed down.

But in practice, I see a lot of the opposite.

Not chilling on Netflix

For example, take a company like Netflix (NFLX).

The market is not chilling on Netflix. It’s up another 13% the past month. Despite a super high PE. And despite a US stock market that’s a couple of years into an up-cycle.

And then take a company like Equinor. The oil market is a few years into a down-cycle. Bringing big oil companies like Equinor down with it.

Don’t get me wrong. I think Netflix is amazing. Both as a consumer and investor.

But it’s also amazing to compare Netflix with Equinor.

One-tenth the price

Take a look at some valuation metrics. Netflix vs Equinor:

• 56x PE vs 7x

• 46x EV/EBIT vs 2x

• 21x P/B vs 1x

• 13x P/S vs 0.6

That last bullet (Price/Sales) is extra wild.

Netflix has sales of $40 billion and a market cap of $500 billion.

Equinor has sales of $100 billion, and a market cap of $65 billion.

Ie: twice the revenue at around one-tenth the price.

Eye of the beholder

I get it. We’re not comparing apples to apples here.

But I think you get what I’m trying to highlight:

1. just how attractive Equinor is

   1. I haven’t even mentioned its relative valuation, 40% margin, 40% ROCE, big dividend or big buyback program

2. just how unattractive the market still finds it

   1. down 14% YTD and 20% Y/Y

3. that risk for Netflix is to the downside, while risk for Equinor is to the upside

Which brings us back to that cycle stuff I was going on about at the beginning.

Mrs. right now

When I make my choices each week, it’s a lot about playing the hand I’m dealt.

I’m as surprised as anyone to be choosing Norwegian oil.

Because of course, a company like Netflix is way more enticing. Subscriptions, digital, scalable. That’s sexy.

But it’s pricey now. And in a US market that’s surged upwards for a few years.

I think the time to buy Netflix was a few years ago, when inflation formed a dark cloud over markets.

There’s a dark cloud over oil. Which means the time to buy oil may be now.

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Thanks for reading. We’ll see how it goes. Talk to you next week.

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Joel Sherwood invests each week and writes about what he buys, learns and earns. He’s a former financial journalist for Dow Jones and The Wall Street Journal, and a current bank employee. He lives in Stockholm, Sweden and started the Sherwood Investment Letter in January 2025. Purchases are not recommendations. Subscribe.

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Fund holdings & performance:

Pandora +14%

Nvidia +10%

Dedicare +7%

Aker BP +6%

Adobe +0%

Investor AB -1%

Equinor -1%

Novo Nordisk -5%

Höegh -6%

Wallenius -8%