Oil Stocks to Remain Resilient Despite Tax Changes

The incoming Republican Congress's tax policies on capital gains are leading some investment houses to advise against major oil stocks. However, analysts predict that no significant flight of investment money will occur due to the tax changes. Oil companies rely heavily on dividends, which will still be taxed at higher rates under the new plan. Instead, analysts point to other factors such as interest rates, stock price, and forecast oil prices as more significant determinants in investment decisions.

Key Takeaways:

• The incoming Republican Congress's tax policies on capital gains are not expected to lead to a significant flight of investment money from oil stocks.
• Oil companies rely primarily on dividends, which will still be taxed at higher rates under the new plan.
• Analysts such as Paul Ting of Oppenheimer & Co. Inc. and Adam Sieminski of NatWest Washington Analysis do not consider capital gains taxes a significant factor in investment decisions for oil stocks.
• The total return on some major oil companies is more skewed toward capital appreciation than dividends, citing British Petroleum Co. plc (BP) as an example.
• Oil analysts prioritize factors such as stock price and forecast oil prices when making investment decisions in the oil industry.
• A few investors might be persuaded against oil stocks by impending changes in the capital gains tax law, but it is unlikely to have a significant impact.

Statistics:

• Oil prices are predicted to average $20/bbl in 1995 (as mentioned by Adam Sieminski).
• British Petroleum Co. plc (BP) stock price has almost doubled in two-and-a-half years.

Sources:

• "Analysts see no flight from oil stocks despite tax policy" by an unnamed author (publication date unknown)
• Adam Sieminski, an oil analyst with NatWest Washington Analysis
• Paul Ting, a portfolio manager with Oppenheimer & Co. Inc.