Are Oil Stocks the Best Investment?
Where Do You Invest When the Bull Market Hits its Peak?
Stock market experts like Charlie Wien says “I don’t think there’s a lot of upside from…not a lot more value than current level.” As you can see from the graphic, he acknowledges that a recovery could extend profitability because earnings continue strong.
However, he doesn’t get into the reasons why the 2022 investment year could be really good. Earnings of mediocre sectors and industries isn’t the issue. It’s the rise of those sectors that will create phenomenal profits that matter for stock trading enthusiasts.
Despite the lower price performance the last week, the energy sector has enjoyed the best performance in 2021. Oil stocks might be the very best choice with some forecasting $200 a barrel price plus rising output which translates to big, continuous high profitability. When the winter chill hits, we’ll see a renewed focus on the energy sector.
He’s referring to whether this bull stock market has any further legs going into 2022. Obviously, he’s not optimistic about whether there’s much more growth to be enjoyed for your 401k.
Right away, you might be thinking this old timer is out of touch. Maybe he is, or maybe he isn’t. I think his comments should incite some deeper thought about where to put your money. He’s a significant voice with lots of experience, someone to respect. What if we look at this as a cue to changes, a signal to change course?
In general, it’s hard to argue for more growth on the record prices on the S&P, NASDAQ, and Dow Jones, except that we know the pandemic recovery hasn’t had an opportunity to really soar. And the economy’s attempt to surge has been thwarted by the manufacturing and supply shortages.
So what if the supply chain issues actually encourage more sourcing for North American production to avoid supply side disasters. Is US sourcing for products a dimension that investors haven’t taken account of? US manufacturing is up.
Bulls vs Bears
The bull vs bear comparison is a tough one because it pivots on political decisions. But we know the Demos are in big trouble. The President and team didn’t foresee that the recovery would end up driving oil and energy stocks through the roof. The bigger the recovery, the less likely renewable energy can fulfill demand. In fact, a conversion to electric vehicles has resulted in big shortages of lithium, cobalt, copper and electricity.
As a result, despite what the Fed says, interest rates will not rise. The markets need more lift and this regimehas but 3 years left in their term. They’re not going to allow higher interest rates boot them out of office. They’ll keep rates low to stay alive.
The stimulus package won’t be $3.5 trillion but it’s likely the Republicans will agree to an economic boost of some kind. That will boost the markets and in turn really heat up demand for fossil fuels. Of course, it’s at a time when fossil fuels are being constrained in both Canada and the US. A forecast of $200 a barrel is folly, but it will rise. The fact it will be a warm winter just means a moderating effect, allowing OPEC to control a consistent high price.
As the economy heats, the Dems will come under intense pressure to facilitate exploration and drilling. The embarrassment of importing so much oil from OPEC will be too much to bear. The media coverage will give the Republicans further legitimacy and the Demons will have to act or risk severe punishment in the 2022 midterms and 2024 presidential elections.
The Dems know this aging President won’t last 3 years let alone another term. They must do what they can while he is coherent.
This paints a golden scenario for fossil fuel investment (gas, oil, plastics). Investing in oil stocks seems to be the ultimate opportunity for investors.
It’s probably obvious to you that I’m bullish on oil stocks. OIl is at $84, well ahead of projections.
Bullishness hinges on the idea that too many advisors aren’t seeing the political drivers and the global economic drivers of traditional energy. They’re still in the US-only carbon reduction zeitgeist, and it’s the persistence of that artificial wall that will prevent better oil supply.
This means oil will reach new record prices, perhaps above $100 and it will persist well into 2022. That means oil companies will produce consistent record levels of revenue and may not be spending on exploration (because it’s blocked). Pure profit is happening.
While there are plenty of investible oil stocks. You may want to invest internationally where exploration and drilling are still allowed. You can focus on Texas or you might even buy for the long term and invest in Montana/Ohio companies that may be able to resume.
Remember, fracking can produce an additional 3 to 5 million barrels of oil daily which would resolve the energy crisis. Dems won’t allow it until the Republicans take office. With a Republican win, oil production will open up again.
However, it is easier to open the Keystone Pipeline and resolve the energy crisis quickly. The longer oil stays at above $100, the more harmful it is to the health of the US economy. It’s wise to take a close look at Canadian oil stocks. Canadian producers have their production hemmed in and it’s underpriced ($69 a barrel). With the CAD rising fast and Canadian production likely to ramp up, the upside for Canadian oil stocks is huge.
Of course, US oil companies with easy to pump light crude are also an attractive play. Many of these companies are getting big attention right now.
Here’s Barchart.com’s look at the best oil stocks to consider of late. I have my favorites which I’ll let you know about in future posts. Right now, there’s plenty of opportunity in the oil sector where you might grow your 401k by 3 to 10 times.
I know of one oil stock that $613 last oil boom and it’s only at $80 right now. It’s P/E ratio is 6.91! Compare that to your favorite Faang stocks and you’ll be changing your investment strategy quick.
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