Energy stocks could pull a Tesla and go parabolic in 2021, Fundstrat's Tom Lee says
Energy stockscould go parabolic this year and trade like Tesladid in 2020 as investors experience FOMO, Fundstrat's Tom Lee said in a note on Thursday.
- The trade is playing out so far in 2021. The S&P 500 Energy Index is up 13% year-to-date, while the broader S&P 500 has climbed less than 1%.
- With the sector making up just 2.5% of the S&P 500, few investors have exposure to energy stocks, according to Lee.
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The energy sector fell 37% in 2020 and briefly saw oil prices dip into negative territory as the COVID-19 pandemic and ensuing travel restrictions sparked a collapse in demand. Over the same time period, Tesla soared 743% as the company managed to barely miss its 500,000 full-year delivery goal by only a few hundred cars.
But energy stocks are already starting to stage a rebound, with the sector up 13% year-to-date, while the broader S&P 500 has climbed less than 1%, Lee points out. On top of that, few investors have exposure to energy stocks, with the sector making up just 2.5% of the S&P 500.
This is the same recipe for FOMO, or the fear of missing out, that helped drive shares of Tesla higher in 2020, according to Lee. A surge in energy stocks could drive fund manager underperformance, given that "many institutional investors have ZERO weighting in energy," Lee said.
A new source of buyers from fund managers worried about underperforming their benchmarks could coincide with fundamental improvements to energy companies, as they begin to reverse 4-years "of misery," according to Lee.
"If this happens, energy stocks could go parabolic in 2021," Lee said.
Energy stocks could be supported by a decline in supply growth due to potential regulations from President-elect Joe Biden, Lee said, adding that demand is set to recover as a global economic recovery materializes.
"The re-alignment of the supply/demand outlook for Energy is the most dramatic of any sector," Lee explained.
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