Market watchers are divided on where the global economy may be headed in the short term, but they do agree on energy stocks: Low oil prices make it a good buying opportunity, they say.
Mark Luschini, chief investment strategist of Janney Montgomery Scott, argues that concerns over weak economic growth may be overstated. A better growth picture, he adds, means good news for energy firms.
“Despite weak data points, though, global economic growth should improve,” Luschini argues in his latest economic overview, released late Monday.
“Global sales appear solid over the last six months, and global factory output should close the gap,” he said. “September manufacturing numbers are encouraging, and consumer spending should accelerate with oil prices down.”
The strengthening labor market, low interest rates and weak energy prices should boost growth in the U.S., Luschini explains. “Despite weak September retail sales numbers, sales are still up 4.5% year over year on a trend basis. If consumers continue to benefit from declining oil prices, confidence should rise.”
The strategist acknowledges that there’s some risk the U.S. could be hurt by weak global economic growth. However, current U.S. economic data “does not yet reflect this,” he says.
“With oil prices down 25%, global consumer spending should accelerate,” Luschini added. “Solid September global auto sales support this view.”
In addition, he points out, low inflation gives global central banks more flexibility and weakens government fiscal drag.
The situation presents investors with a good time to jump in.
“Despite oil prices being hit hard over the past few months, some indicators have historically proven this time to be a contrarily bullish time to buy the energy sector,” the strategist wrote. “Unless these indicators weaken enough to signal that a global recession is a serious threat, then at least a playable rally should ensue before re-evaluating an overweight stance.”
Meanwhile, LPL Financial (LPLA) Chief Investment Officer Burt White and market strategist Jeff Buchbinder make their case for energy investments in a report shared early Tuesday.
The two experts argue that the current oil sell-off is “overdone” and that oil should find a price floor “in the low $80s.”
They base their forecast on an expectation that global growth should improve, despite weakness in Europe.
“Energy-service stocks are particularly oversold and may be attractive as the services-intensive U.S. energy renaissance continues,” White and Buchbinder said.