It’s not too late to buy oil and gas stocks, one chart analyst says.
Though the Energy Select Sector SPDR Fund (XLE) and Invesco Solar ETF (TAN) climbed nearly 6% and 4% last week, respectively, traditional energy names likely have more runway as oil prices hover near three-year highs, Piper Sandler’s Craig Johnson told CNBC’s “Trading Nation” on Friday.
“I don’t think it’s too late to buy either of them. But if I’m going to buy it from a longer-term perspective, I’m going to favor the XLE over TAN,” the firm’s senior technical research analyst said.
“We’re just starting to push back above this $54 level, and a move back above $54 is going to open up the door for a … leg higher back up into the mid-60s,” he said.
The XLE ended trading half of 1% higher on Friday at $55.34 a share.
Johnson recommended buying the ETF outright or investing in individual energy stocks, highlighting top holding Exxon Mobil and petroleum and natural gas stock Range Resources.
“I’ve had a lot of calls with institutions over the last couple days and I’ll tell you that most institutions are extremely underweight the energy sector,” he said. “And with this being the best performance for the energy names since 2005, up 45%, they’re going to have to buy them. They will not have a choice.”
The TAN solar ETF could have trouble recapturing its old highs, however, Johnson warned.
“This is a chart that has reversed a downtrend going back to the January time frame. We’ve just recently recaptured a 50- and 200-day moving average,” he said. “If we put in a lower high than where we were before, I suspect that’s going to put in a bit of a short-term top for some of these solar names.”
Though TAN”s momentum has picked up as well — typically a sign of strong demand — it’s also the third time the solar play has undergone a 26-week momentum spike, Johnson said.
“The prior two times led to a two-and-change-year bear market in those stocks and I would not be surprised to see that happen again,” he said.
The upcoming OPEC+ meeting could moderate the optimism around traditional energy stocks, Chantico Global founder and CEO Gina Sanchez said in the same “Trading Nation” interview.
“You could argue that there is more room to run for oil prices as we see more demand. But remember that OPEC works very hard to manage that price,” said Sanchez, who is also chief market strategist at Lido Advisors.
“We kind of expect something in the range of 65 to 70 to be somewhat of a long-term, sustainable fair value for oil, not 100,” she said.
U.S. West Texas Intermediate crude oil prices were just below $74 a barrel early Monday.
“Energy stocks are really reacting to the fact that they’re getting tempted back to the drilling pad,” Sanchez said. “We are seeing a significant rise in terms of the number of drillers that are out there and that’s in response to this very real demand.”
Sanchez also favored Exxon for the company’s work to boost its operating leverage, which she said could give it a leg up as the economic reopening gains ground.
Disclosures: Lido Advisors owns shares of Exxon Mobil.