The oil industry might not be everyone’s first choice when it comes to investing, but VanEck CEO Jan van Eck thinks that’s a mistake. According to him, oil stocks are an untapped opportunity for investors looking to put their money to work.
Van Eck made the case for oil stocks on CNBC’s “ETF Edge” this week, pointing out that these companies are some of the best cash flowing companies around. Despite this, they’re trading at double-digit cash flow yields for E&Ps and sectors in the oil market. In other words, oil stocks are trading at a significant discount compared to other high-performing sectors like semiconductors.
Van Eck’s firm runs the VanEck Oil Services ETF, which is currently down almost 7% for the year and more than 9% over the past 52 weeks. While these numbers might seem discouraging, they present a potentially lucrative opportunity for savvy investors. As of Jan. 31, FactSet data shows that the ETF’s largest holdings include Schlumberger, Halliburton, and Baker Hughes.
But why are oil stocks performing so poorly? Van Eck suggests that it has to do with the current state of the global economy, which is at a standstill due to various geopolitical factors. However, he remains optimistic about the future trajectory of this industry, despite its current underperformance.
Todd Sohn, strategist at Strategas, shares this sentiment, characterizing oil stocks as unloved but full of potential for a turnaround. Last year, they experienced significant outflows, but Sohn believes that this sector could see a resurgence if there’s a downturn in tech.
As if to prove their points, WTI crude just had its best weekly performance since September, capturing most of its gains for the year in a single week. The commodity climbed 6% to settle at $76.84 a barrel. This is a significant development that could signal a shift in the fortunes of the oil industry.
In summary, while the oil industry might seem like an unattractive investment at first glance, there are compelling reasons to consider adding oil stocks to your portfolio. With their current underperformance and the potential for a turnaround, oil stocks could present a major opportunity for investors who are willing to look past the surface.
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