Navellier remains bullish on energy... In the past, he was a weather vane selling advice for what attracts money to manage which in the hot, trending stocks and sectors. As a contrarian, I follow him like I do Cramer... This first paragraph should be a red flag...
12-28-22: Energy is Still a Strong Play in 2023
by Louis Navellier
December 28, 2022
I mentioned on Fox Business recently that “we are in a 15% stock market,” by which I essentially mean that all the positive sales and earnings forecasted are concentrated in the top 15% of all stocks that I monitor. As a result, the institutional buying pressure that creates the “Alphas” that I seek is chasing fewer stocks than the normal 40% of all stocks that perform well and exhibit relative strength.
In other words, institutional buying pressure is focused on fewer stocks than normal. This acts like a funnel, or even like a “firehose” that is focusing buying pressure into a narrower stream.
I monitor this buying pressure when calculating the quantitative grades in my online stock grading databases, which are designed to identify institutional buying pressure based on Alpha/Standard Deviation, which is essentially “Returns Independent of Stock Market/Volatility.” Essentially, a high quantitative score essentially means that there is persistent and relentless institutional buying pressure.
This is how I identified energy stocks as big winners in 2022. In addition to high energy prices, I saw the buying pressure causing a resurgence in energy stocks. I expect that buying pressure to persist for the foreseeable future, so I expect energy stocks to continue to dominate our stock selection screening.
I should add that major indices are now boosting their energy weights, so institutional managers are now net buyers of energy, since they traditionally like to “track” the indices. One example is that the NASDAQ 100 in its annual rebalancing is adding six stocks, including Diamondback Energy and Baker Hughes, while removing seven stocks. It’s incredibly bullish for energy that two of the six stocks being added to the NASDAQ 100 are energy stocks, while not one energy stock is being removed.
In other leading sectors we favor, Super Micro Computer (SMCI) is being added to the S&P 400, while Steel Dynamics (STLD) is being added to the S&P 500. There is no doubt that when the major indices are being updated companies with strong sales and earnings are being added to the major indexes.
In the case of the S&P 500, energy stocks have surged to approximately 6% of the index, up from barely 2% a year ago. In the upcoming years, I expect that energy stocks will rise to approximately 30% of the S&P 500 as the institutional blowback against ESG investing spreads. The ESG blowback will spread in 2023 as many university endowments and pension funds must explain to their trustees why they avoided investing in fossil fuel companies for ESG reasons. The folks at S&P Global muddied the definition of what ESG means when they booted Tesla from its ESG index back in May and added Exxon Mobil!
Just to demonstrate how powerful these indices are, since S&P Global kicked Tesla out of its flagship ESG index to buy Exxon Mobil back in May, Tesla’s stock has been crushed, despite reaching record sales! Now the NASDAQ 100 is following S&P by adding energy stocks and removing some popular technology stocks. We are now in an energy renaissance, where the world is rediscovering the importance of fossil fuels as the G7 strives to break away from Russian-sourced energy supplies.
The jury is still out on the G7’s $60 price cap on Russian oil. All I can tell you is that my tanker stocks “gapped” up in the more aggressive services, so I suspect crude oil transportation is picking up. The LNG business is also robust, now that a cold front enveloped Europe, with natural gas demand soaring. The easiest way for Russia to get around the G7 $60 price cap is to sell crude oil to China, India, Saudi Arabia, and UAE, who refine the Russian crude and sell it as refined products, like diesel, heating oil, and jet fuel.
The primary reason that I expect crude oil prices to rise in the New Year is due to the fact that the Biden Administration is expected to stop draining a million barrels a day from the Strategic Petroleum Reserve (SPR), since it is down to its lowest level since 1980 and the new Republican House is expected to be critical of the SPR releases. Furthermore, with China re-opening, crude oil demand should steadily rise.
Finally, crude oil prices traditionally rally in the spring, due to increasing seasonal demand, so I feel crude oil prices could easily rise above $100 per barrel in the upcoming months and eventually hit $120.
I should add that The Wall Street Journal reported last week that 180 million barrels of light sweet crude oil were released from the SPR this year at an average price of $96.25 per barrel. There are about 382 million barrels of crude oil remaining in the SPR, down from 593 million barrels at the start of the year.
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