Fundstrat’s Tom Lee urges investors to buy oil stocks as energy ‘FOMO’ picks up, see 278% rise in this ETF

FILE PHOTO: An oil pump jack pumps oil in a field near Calgary
  • According to Fundstrat’s Tom Lee, fear of missing out is likely starting to increase for investors with little exposure to energy stocks.
  • The energy sector is up 32% year-to-date, but with such a low weighting in the S&P 500, investors have little exposure to the sector.
  • Lee said an oil ETF could jump 278% if the price of oil hits $80 a barrel.
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The surge in energy stocks so far this year is likely creating “FOMO” for investors with little exposure to the sector, Fundstrat’s Tom Lee said in a note on Wednesday.

Lee points out that the energy sector of the S&P 500 has climbed 32% since the start of the year, making it the best performing sector by far this year. The second best performing sector is financials, with a return of 14%.

But investors have little exposure to the energy sector. According to Lee, the S&P 500’s weighting in energy stocks is around 2%. This dynamic “potentially creates performance issues for those who are underweight,” Lee said.

Energy is a “misunderstood” sector, according to Lee. Warren Buffett’s right-hand man, Charlie Munger, likely agrees, who said Wednesday he doesn’t foresee a long-term demise of the oil industry.

For exposure to the energy sector, Lee recommended investors buy the VanEck Vectors Oil ETF, which is “ridiculously cheap” compared to current oil prices.

“There is a comparative price gap between oil at $60 and where energy stocks are trading,” Lee explained.

Based on an analysis of the price relationship between oil and energy stocks since 2009, Lee estimates that the oil ETF could climb to $530 with oil prices at their current level of $60 a barrel, which represents a potential upside of 178% from Tuesday’s close.

And if oil prices continue their upward trend to $80 a barrel, Lee believes the oil ETF could trade at $720, which represents upside potential of 278% from Tuesday’s close. .

“I recommend at least taking a small weight position in the market, but obviously since energy is one of our top 3 sectors for 2021, we recommend a much larger overweight position,” Lee said.

The VanEck Vectors Oil ETF traded up 6% in Wednesday’s trades.

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Felix J. Dixon