Still an Allergan Fan; Oil Vey!: Doug Kass' Views

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

A quick look at the Allergan ( AGN) release reveals a good quarter and excellent guidance.
 
While I will have a more detailed analysis of the quarter after reviewing it more carefully, the lack of apprecation in the shares this morning is likely more a function of a broader rotation (for now!) out of the biotech sector than anything specific to the company.
 
I have been adding to AGN on weakness over the last few weeks (and as recently as yesterday), but I would continue to caution on the May calls as a volatility crunch could lie ahead after the good earnings report and after the strong year-to-date gain in the shares.
 
Allergan remains a long-term investment and not a short-term rental in my portfolio.
 
The shares were placed on my Best Ideas List last December at $194 a share and are trading this morning around $242 (up a bit on the day).
Position: Long AGN.
 

Oil Vey! I'm Buying Energy Stocks

Originally published May 8 at 11:49 a.m. EST

This morning I began to establish a long position in Energy Select Sector SPDR ETF ( XLE) ($67.30, down from $78 near the close of 2016)--the largest energy share-related ETF.

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.

Position: Long XLE (small).

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