Centrica (LSE: CNA) shares have rocketed since the start of the pandemic. So much so, the British Gas owner is the FTSE 100‘s best performer over the last three years.
Few saw this terrific surge coming though. In the early days of the pandemic, investor sentiment was low. Planes weren’t flying and the price of oil went negative. No wonder an energy firm like Centrica was being oversold.
In hindsight, fallen energy shares were a massive opportunity. I’m reminded of the famous Warren Buffett quote: “Be greedy only when others are fearful”. Anyone greedy as the shares dived might agree.
At the depths of the pandemic, the shares went for 32p apiece. They slowly rose over the next three years to reach a high of 170p.
Good going
Using these numbers, if I’d invested £1,000, my stake would have risen to £5,336. Over five times the return in just a few years? That’s pretty good going.
I’ll mention that a few dividends were paid over the time frame too. They were small ones though and infrequent. Throw a few pounds extra onto the final calculation then.
Either way, turning £1k into £5k in three years is hugely impressive. And while I can’t rewind time, I can look at the characteristics of the stock and its sector. Perhaps I can tease out a vital piece of information to help me spot future big winners.
Cheap entry points
In Centrica’s case, it’s hard to ignore the cyclical nature of energy stocks. Shell, BP and SSE all surged alongside each other. The sector performed better than any individual stock did.
Energy stocks tend to rise and fall as geopolitical moves play out. In recent years, the war in Ukraine caused wholesale energy prices to skyrocket – a large part of the growth for Centrica.
Predicting world events is next to impossible. And anything with a semblance of certainty is already priced into stocks. But I can look at sectors that have these natural ebbs and flows.
The ups and downs of cyclical markets often present cheap entry points.
Opportunities
Are there any sectors in a down period now? The housing sector might be. Housebuilder Taylor Wimpey stock is lower than it was in 2015. Persimmon stock is lower than it was in 2014.
The short-term headwinds of falling house prices and expensive mortgages are hurting housing stocks, but the country has a huge demand for homes in the long term.
Will I write an article on the surging gains of these housing stocks in three years? If so, I might look at the final month of 2023 as a terrific entry point. I may increase my exposure here in the coming days.
