Energy’s rough patch may not last long.
The year’s top-performing sector — the worst performer in the past month — should maintain the No. 1 spot as investors realize the depth of the demand-supply imbalance in energy, BK Asset Management’s Boris Schlossberg told CNBC’s “Trading Nation” on Thursday.
Though concerns around the Covid-19 delta variant have kept a lid on gains, “once that goes away, you’re still going to have resurgent demand with very limited supply,” the firm’s managing director of FX strategy said.
His top pick in the space was oilfield service company Halliburton, which he was long via the $19-$22 call spread expiring in November. The stock began trading up nearly 2.5% at $19.91 on Friday.
“Even though it’s a fracking company in a lot of ways, fracking at these levels of oil prices is the best market since 2017, so, I think it’s going to perform very well,” he said.
The company is also using artificial intelligence and cloud computing to streamline its processes and make it more asset-light, another plus for investors, Schlossberg said.
“All of this stuff is going to translate into much better margins and earnings for the company as we go forward, especially if oil just simply stays at these levels,” he said. “It doesn’t even have to rally. Just as long as it stays at 65 through the end of the year, I think we’re going to look very golden with Halliburton.”
West Texas Intermediate crude oil prices rose slightly to around $69.63 on Friday.
It may pay to be more cautious when it comes to energy stocks, TradingAnalysis.com founder Todd Gordon said in the same interview.
“XLE is beginning to rotate out of favor relative to the S&P as the benchmark,” with technology rotating into favor instead, he said, referring to the Energy Select Sector SPDR Fund.
“We’re going to need energy for sure, but in terms of in our portfolio, I’d say no,” Gordon said.
For those who must have exposure, Gordon recommended exploration and production stocks over equipment and service plays.
“Exploration and production is the industry to watch within energy, and if you want a name, try a name like Devon,” he said.
With a 1.7% dividend yield and several earnings beats behind it, Devon offers stability on a fundamental basis and a potential breakout opportunity on the technical front, Gordon said.
“If we can get up through about $32, we’ve broken technical resistance,” he said. “Maybe it gets a run if you want some energy exposure.”
Devon started Friday’s trading nearly 3% higher at $27.41.