When it comes to energy stocks, it is important to choose the best opportunity
Wall Street has a tough time breaking old habits. Today
we’re going to examine the opportunity with energy stocks.
Last year, major investors committed to being more Earth
friendly and the concept of ESG investing took flight. Global shutdowns gave
the environment a big break. Humans drastically reduced the use of fossil
fuels. For one thing, air travel fell 90% and people stopped driving to work.
Finally, telecommuting became a reality. Zoom (NASDAQ:ZM) is now a verb that we
use often.
While the pandemic brought environmental relief, it
decimated energy stocks. They are making a comeback, especially recently. From
October lows, the sector rallied nonstop and as much as 50%.
My goal here is to restore some realism. Yes, energy’s
breakout is real and shorting is not wise. But starting long now is getting in
late. I’ve been bullish energy but only after corrections. When the experts
hate them, that’s when I like them most. Now we have the exact opposite and the
chase is weeks old.
If we ignore last April’s ridiculous negative low mark,
crude oil prices are up 218% in less than a year. To chase now means a very
long-term commitment. Therein lies the problem. The world is committed to using
up less oil. This doesn’t support an out-of-control oil price.
The main part of my prior strategy was to own energy stocks
for the fixed income. Thanks to loose global economic policies there is no
reward to parking cash. U.S. bonds are the only major instruments that still
have some yield. For the last two months, those rallied about 150%. The 10-year
and the 30-year bonds now pay 1.3% and 2.05% respectively.
But even that pales in comparison to what stock dividends
offer. Energy stocks are at the upper echelon of that group. However, I dislike
chasing them for capital expansion. I’d rather miss whatever incremental upside
occurs and catch them on the next dip.
Smart money bought energy stocks on prior dips. Here are
three that meet that criteria:
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