Is it time to pull out of the energy stocks now?
- Joe Terranova continues to be bullish on the energy stocks.
- He’s constructive on a diversified set of energy companies.
- "XLE" is already up nearly 60% versus the start of the year.
“XLE” – the Energy Select Sector SPDR Fund has climbed nearly 60% this year. But that’s not a reason enough to cut exposure to this holy grail, says Joe Terranova – the Senior Managing Director of Virtus Investment Partners.
Terranova’s bull case for energy stocks
For energy stocks, Terranova sees several catalysts for the foreseeable future. To begin with, OPEC+ will be cutting oil production by 2 million barrels per day from next month as Invezz reported here.
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Then of course, the U.S. has to replace about 180 million barrels of strategic reserves. All of that when the global energy crisis as a direct consequence of the Ukraine war is far from over yet. On CNBC’s “Halftime Report”, he said:
All of the fundamentals still point towards maintaining an overweight exposure to the sector. We’ve placed a band aid on domestic and global supply challenges. We’re only at the initial stages of seeing some form of demand destruction.
Despite a marked decline from its year-to-date high, oil is still keeping well above its year-ago price.
Energy stocks pay lucrative dividends
Another notable tailwind that could play right into the hands of the energy space is “China”. It could result in a future boost in demand considering parts of it are still in a lockdown.
Terranova likes the energy stocks also for their balance sheets and returns to shareholders.
You have companies focusing on balance sheet. For a shareholder, what more you want a company to do than improve the balance sheet, turn around and return capital to you in the form of dividends and stock buybacks.
Multinational E&Ps, oilfield services, refiners – he’s constructive on a diversified set of energy companies.
Also on Wednesday, Wells Fargo issued a bullish note on “energy”, naming Haliburton and Liberty Energy as particularly great picks.