One fund manager just made a bold, bullish call on energy stocks, even as the sector withers as this year’s worst performer and languishes in a technical bear market.
Mark Tepper, president of Strategic Wealth Partners, said in an interview Tuesday on CNBC’s “Trading Nation” that he just went overweight on energy names, even as the sector has fallen 17 percent on a year-to-date basis and the price of oil has tumbled 10 percent in that time. Indeed, since the sector is more than 20 percent below the 52-week high hit last December, it has fallen into a condition some refer to as a “technical bear market.”
Much of the sector’s weakness has been driven by rising shale oil production, increasing crude inventory and investors’ doubts about production cut cooperation by OPEC members.
But according to Tepper, the “steepest drilling upcycle in recent memory is slowing with Baker Hughes reporting flattening oil rig count, and then valuations are signaling a reversal.”
His valuations measurement model is currently one standard deviation below its average level. Not only does that indicate energy stocks may now be inexpensive, but that specific level is typically seen before a bullish reversal.
At this point, oil simply cannot seem to “get out of its own way,” Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management, said Tuesday on “Trading Nation.” The top for crude in the near term, he said, appears to be $50 to $55 per barrel and he isn’t optimistic on the popular energy-tracking exchange-traded fund, the XLE.
However, he likes it as a rather contrarian trade for those who believe equities will see selling pressure coming up.
“I think as a mean reversion trade, it’s actually quite interesting. In fact, I think it’s actually a great trade to hide the coming decline in equities. If you think that volatility is going to increase and the broader market is going to sell off, as a natural correction because of seasonality. Energy is going to be a great place to hide. And I think that’s going to be the trade, long XLE, short S&P for a trade, as a hedge,” Schlossberg said.
On Wednesday, the energy sector was one of four S&P 500 sectors trading in positive territory.