It’s Time To Get Greedy In The Energy Sector

12/12/19 11:09AM EST

The guest commentary below was written by Jesse Felder of The Felder Report. 

It’s Time To Get Greedy In The Energy Sector - B5CADA64 7122 4540 BC39 9636E0267ED2

It feels like yesterday but it was over four years ago that I wrote,It’s Time To Get Greedy In The Gold Market.”

Gold was under $1,100 an ounce at the time and, for a number of reasons, it felt like there was the proverbial “blood in the streets” that marks a great time to buy.

As I wrote at the time, “It’s very easy to say, ‘be greedy when others are fearful,’ but it’s another thing entirely to actually do it.” And it was not easy to be a buyer of gold while it was so deeply out of favor but it has paid off since. The gold price recently hit $1,550 and the gold miners ETF (GDX) has doubled.

Looking at the energy sector today, I’m reminded in so many ways of this opportunity in gold. This looks to be the third losing year in a row for energy stocks, a pretty rare feat for any sector or asset class. And it comes after the back-to-back losing years of 2014 and 2015 (only 2016 kept it from being a six-year streak!). Gold had nearly gone four straight years of losses when it bottomed in 2015.

And, according to my friend, Meb Faber, it’s just this sort of persistently painful performance that typically sets up a terrific rebound.

https://twitter.com/jessefelder/status/1204523142372347904

The relative performance of energy has been so painful that it now makes up the smallest share of the S&P 500 in over two decades.

https://twitter.com/jessefelder/status/1105106016478220288

Investors have clearly become very fearful of this sector, consistently pulling tons of money out of the sector.

https://twitter.com/jessefelder/status/1204082676577247232

But there are signs of hope. Typically, inversion of the yield curve, as we saw over the summer, is a good sign for the relative performance of the energy sector.

https://twitter.com/jessefelder/status/1162376329259552768

And as my friend, Eric Cinnamond, points out, energy stocks have also become really cheap.

https://twitter.com/jessefelder/status/1199037354213888000

So cheap, in fact, that they now offer their highest yields in history which, as my friend Louis-Vincent Gave points out, should help to put a floor under the shares.

https://twitter.com/jessefelder/status/1175102092995903489

Finally, the smartest of the smart money appears to be circling the sector as they smell a rare opportunity.

https://twitter.com/jessefelder/status/1204456556621897728

To paraphrase what I wrote about gold four years ago, I’m fairly certain that energy stocks are now the most hated group in the markets.

For that very reason, they are likely the most attractive opportunity an investor can find today.

EDITOR'S NOTE

This is a Hedgeye Guest Contributor piece written by Jesse Felder and reposted from The Felder Report blog. Felder has been managing money for over 20 years. He began his professional career at Bear, Stearns & Co. and later co-founded a multi-billion-dollar hedge fund firm headquartered in Santa Monica, California. Today he lives in Bend, Oregon and publishes The Felder Report. This piece does not necessarily reflect the opinion of Hedgeye.

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