Paperstand (SLB, XOM, AA)

The WSJ’s ”Ahead of the Tape” column out saying that many energy stocks are still cheap. It's true b/c investors all along have been pricing these stocks as if the surge in energy prices was temporary. Investors also have been wary of hot sectors after getting burned by the dot-com bubble. The avg forward P/E ratio for shares in the Philadelphia oil equipment and services index is 15. That's below the 10y avg of 21x. The overall P/E multiple for stocks in the S&P 500 index is 16. Schlumberger (SLB), one of the biggest components of the oil-services index, reports 2Q earnings today. Analysts expect it to post net income of 95c a share, up 30%. Schlumberger's stock is more expensive than its peers, valued at 19x the next 12mo's earnings. But it's still below the co's 10y avg of 22. Exxon Mobil (XOM) has a FP/E multiple of 14, below the 10y avg of about 18. The energy stock rally might not be over if energy prices remain elevated. The IEA says oil supplies in the next 5ys will be tighter than it once thought, with global oil demand rising at a 2.2% pace per year. That forecast is based on the assumption that the world's economy will grow at an annual pace of 4.5%. A wild card in all of this is China, whose phenomenal growth has been a big contributor to the surge in energy prices. If China cools off, that could change the energy-demand dynamic. But China doesn't show any signs of slowing down, its economy surged 12% in the 2Q. If that pace keeps up, it should keep the fire lit under energy prices, and the shares of energy co’s.

Barron’s Online “Inside Scoop” section reports that the withdrawal of Alcoa’s (AA) offer to purchase Alcan (AL) has sparked a slew of insider selling at Alcoa. From July 13 to 17, four senior execs grossed $41.3m by selling 877K shares on the open mkt. The sellers were: Lawrence R. Purtell, general counsel; Bernt Reitan, group president of Alcoa's Global Primary Products; Joseph Lucot, corporate controller; and Paul Thomas, group president of Alcoa Packaging and Consumer Products. Ben Silverman, of InsiderScore.com, notes that Alcoa insiders tend not to be big sellers, and the sales over the past week have been the largest since ‘03. While the dollar amount of these sales was large, "what was interesting was the strike prices on the options were pretty high" and they still had a lot of life yet, Silverman adds. Most of the options had expiration dates stemming from 2009 till early 2013. With options priced into the low-$40 range, the premium was "certainly not as big as you are used to seeing." The selling of pricey options by insiders means that it is "probably not a bad idea for investors to take some profits" as well, says Silverman.