It’s worth hanging onto traditional energy stocks despite the recent resurgence in solar names, two traders say.
The popular Invesco Solar ETF (TAN) is up nearly 10% this week, helped in part by Enphase Energy’s surge after reporting record revenue for its third quarter. TAN is beating the Energy Select Sector SPDR Fund (XLE) in the past month, up almost 22% versus the XLE’s 8.5% gain, but is still lagging year to date.
Although oil and gas stocks are facing some headwinds including rising U.S. crude stockpiles, “we believe there’s more value in the energy sector,” Vios Advisors managing director Michael Bapis told CNBC’s “Trading Nation” on Wednesday.
“They’re going to play a big role in the basic economic recovery. They are going to be one of the prime benefactors of the infrastructure bill,” said Bapis, whose firm is housed at Rockefeller Capital Management.
“There’s a much higher demand than there is supply. We have winter coming,” he said. “We have the growth-to-value rotation and energy is going to be a big benefactor of that. And then lastly but always important in our analysis is the valuations.”
With high cash balances and attractive dividends, energy stocks’ valuations are still “reasonable” even with the rise of solar and other energy sources, Bapis said.
“Both … are necessary, but we are favoring the energy sector,” he said.
XLE’s top holdings by weight are Exxon Mobil, Chevron, Schlumberger, EOG Resources and ConocoPhillips. Executives from Exxon, Chevron, BP and Royal Dutch Shell testified before Congress on Thursday regarding whether and to what degree their companies covered up their true impacts on climate change.
Another trader wasn’t ready to ditch traditional energy names, either.
“We are in an energy transition,” Tocqueville Asset Management portfolio manager John Petrides said in the same interview.
“We are still very much in need of the traditional fossil fuels as you could see by the shortage we’re having globally, but at the same time you can’t ignore climate change and the push towards alternative energy.”
He suggested having exposure to both while the U.S. undergoes what could be a longer-term shift.
“We can’t live without one, but we’re moving to the other and we’re not on one side of the boat anymore from traditional energy to alternative,” he said.
