Doug Kass shares his views every day on RealMoneyPro. Click here for a real-time look at his insights and musings.
Still a Big Allergan Fan
Originally published May 9 at 10:39 a.m. EST
Oil Vey! I'm Buying Energy Stocks
Originally published May 8 at 11:49 a.m. EST
Let me explain:
Over the past few weeks the price of crude oil has declined and the price drop has accelerated in the last five trading sessions (-6%). Thursday's 4% decline was a curious (and perhaps artificial) one which seemed to be a function of hedge fund liquidations.
With the current oil price of $46.40/barrel, crude is selling below the price in November 2016 when OPEC reached a production agreement.
Some of the factors contributing to the recent weakness include slowing Chinese economic growth and an expansion in U.S. production.
In 17 days OPEC meets in Vienna to determine whether the November production cuts will continue.
In the interim, interval crude prices may be volatile. While a failure to extend the November agreement could result in another $6-$10/barrel decline, I expect an agreement extension is the base case and most likely. This coupled with seasonal demand strength could result in a firmer base for energy prices over the next few months.
Crude oil's schmessing has had a profoundly negative impact on oil-related shares already. As I mentioned, the XLE, which traded at $78 in late 2016 is now more than $10 lower. Ergo, a lot has been discounted in the much lower share prices of oil and gas producers, pipelines, MLPs and service companies.
Meanwhile, the new administration seems supportive of the energy industry.
Sentiment is extremely low toward energy stocks. But I would be greedy when others are fearful and am establishing energy-related exposure now.
I have not owned energy stocks in years but I plan to average into an XLE position -- starting now. (Here is "Dandy" Dan Dicker's most recent column on the subject.
I will have more on individual stock ideas in the energy space in the weeks ahead.