“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.
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.