Energy is where investors send money ‘to die’ but there is one stock to like in the space, trader says

The S&P energy sector closed out its best month ever after rallying nearly 40% in November.

But, energy finds no fan in Mark Tepper, president of Strategic Wealth Partners.

“The energy sector has been a place you’ve really sent your money to die for the last decade. If you go back to like pre-financial crisis, it was like a 15% sector weighting in the S&P. Now it’s like 2.5%. It’s almost irrelevant,” Tepper told CNBC’s “Trading Nation” on Tuesday.

Over the past 10 years, as the S&P 500 rallied more than 200%, the XLE energy ETF has plummeted 38%. Two of the sector’s largest components, Exxon and Chevron, have also underperformed the broader market.

There is one name that Tepper gives a pass, though.

“If we have to own an energy stock and we do have to own a little, we at least want to get some yield so my favorite name here is Diamondback Energy,” he said. “They’re a low-cost producer. They’re one of the few companies that can actually make money even when oil is below $40 a barrel. They’re focused on protecting their dividend which is over 3%, they’re cutting costs, they’re paying down debts, so they’re doing everything we like.”

Diamondback Energy is up 148% in the past 10 years. It rallied by as much as 9% in the past week.

Todd Gordon, founder of TradingAnalysis.com, isn’t buying the energy bounce, either. He sees the rally as likely a result of short traders covering their positions, which then triggered a cycle that pushes the stocks even higher.

“What happens is selling dries up, people start to get a little nervous, those shorts start to want to get greedy and cover,” Gordon said during the same “Trading Nation” segment. “The XLE [energy ETF is up 35%] in November. I mean, that’s unbelievable. That smells like short covering; that doesn’t sound like new fresh buying interest.”

Like Tepper, Gordon does see opportunity in one energy stock in the alternative energy space – Sunrun. Its shares have risen 383% this year.

“Love it. I hold it, I think stick with what works for now,” he said.

Disclosure: Strategic Wealth Partners holds FANG. Gordon holds RUN.

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