Is it time to sell energy stocks as oil returned to under $80 a barrel?
Oil has returned to less than $80 a barrel in recent days but it’s not a signal that investors should pull out of the energy stocks, says Sarat Sethi. He’s the Portfolio Manager at DCLA.
Here’s why Sethi is still bullish on energy stocks
Much of his optimism is related to “China” that is yet to come out of the lockdowns. Sethi expects a meaningful surge in demand in the second quarter of 2023 when the largest Asian economy comes back online.
You’ll see upward pressure on commodity prices as China starts coming back. Dollar will start moving as well because it’s been so strong. So, I think there’s still a play in oil and gas. I think the demand there is not going away.
Also on Tuesday, Goldman Sachs’ Jeff Currie said there’s reason to believe that OPEC will opt for a further cut on oil production. He expects to see the oil prices back at $110 a barrel next year.
Avoid being overexposed to energy though
On the flip side, Sethi acknowledged the risk of a global economic downturn and cautioned against putting all eggs in one basket. Recommending owning energy stocks only as part of a diversified portfolio on CNBC’s “Squawk Box”, he said:
We’ve got good exposure to energy; we’re not selling it. I’d definitely add energy exposure on a pullback because we don’t have enough supply if demand picks up and that puts huge pressure on prices to the upside.
Energy stocks usually pay a healthy dividend that makes up for another good reason to own them. Nonetheless, it’s an interesting call considering the Energy Select Sector SPDR Fund has already climbed more than 30% over the past two months.
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