“If everyone’s thinking alike, then somebody isn’t thinking.” ~ George S. Patton
Exhibit A: Despite Super Micro Computer’s (SMCI) roller-coaster ride in the stock market, investors should recall that success requires skating to where the puck is going, not where it’s been. Is it time for investors to diversify out of the red-hot tech sector and back into the lagging energy sector?
Funds are the Most Underweight Energy Stocks Since the Pandemic
Historically, lack of interest from hedge funds in the energy sector has indicated a contrarian opportunity. When funds were this underweight energy stocks in April 2020, the United States Oil Fund ETF (USO) doubled over the next few months.
Image Source: Bank of America
Buffett’s High Conviction OXY Play
Berkshire Hathaway’s recent 13F disclosure revealed Warren Buffett’s bullish stance on energy companies like Chevron (CVX) and Occidental Petroleum (OXY). Despite the energy sector’s lag, Buffett has increased his energy allocation, a meaningful move considering Berkshire’s whopping 50% stake in Apple (AAPL).
Image Source: Zacks Investment Research
Red Sea Disruptions Persist
Houthi rebels have disrupted the Red Sea corridor, a critical energy route globally. Despite efforts to counter the rebels’ activities, their disruptive tactics continue to pose a challenge for shippers in the area.
Long-Term Perspective Tells the Story
Amateur investors often succumb to “recency bias” regarding technical analysis. Zooming out to a monthly chart, one can observe the bullish trend in the SPDR Select Energy ETF (XLE) and other energy proxies.
Image Source: TradingView
Valuations
Energy giants like OXY and CVX are currently undervalued with Price-to-Book Values at multi-year lows. Seeking out such value plays might be a prudent move, especially if money rotates out of the red-hot tech sector.
Image Source: Zacks Investment Research
Recent Relative Price Strength
Amid a relatively flat S&P 500 performance for the week, energy names like ExxonMobil (XOM) have shown short-term relative strength, mostly up 2% or more.
Bottom Line
In the ever-evolving market, investors who dare to think independently often thrive over the long run. With the tech sector’s recent meteoric rise, newfound attention on the lagging energy sector may bear fruit.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers “Most Likely for Early Price Pops.”
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.0% per year. So be sure to give these hand-picked 7 your immediate attention.
