National Bank Financial: Overweight Energy

This year’s stock market heroes won’t get the job done in 2010, according to National Bank Financial.

As a recovery takes hold and investors begin to focus on next year’s earnings, NBF strategists Stéfane Marion and Pierre Lapointe recommended Thursday that investors consider “sector rotatation,” out of gold and financial stocks and into energy, materials and consumer products.

NBF advocates overweighting oil and gas stocks, while having market weigh exposure to other materials plays, such as mining. The strategist made two points to back this view, saying: “First, demand for energy correlates strongly with global industrial output. Stock prices in the sector have yet to reflect the recent rise of oil prices.”

“However, we remain wary of gold mines,” said the NBF report, on the logic that bullion will lose its luster as investors stop worrying about safe havens, and focus in instead on growth. The investment bank’s team also sees little risk of inflation, and gold traditionally outperforms when inflation haunts the economy.

When it comes to banks, star performers in Canadian portfolios in 2009, Mr. Marion and Mr. Lapoint said: “The rapid rise of financials leaves them less room to outperform…. We expect financials to continue rising in the coming months, but other sectors could deliver bigger returns.”

NBF advises investors to have a market weigh on financial stocks; the strategists were recommending overweighting the sector.

Comments

[Mad Hedge F...:]

tyui. Crude has been trading like a 3X short dollar ETF. If you look at pure supply/demand considerations, oil should be trading in the $40-$50 range, not the $65-$75 range that we have seen. That means that a $25 speculative premium can be laid purely at the door of the big hedge funds. The big oil producing countries, seeing Obama’s policies leading to a weak dollar for as far as the eye can see, are also ditching their bucks as fast as they get their hands on them. That is why the Gulf sheikdoms were one of the biggest buyers of crude near last year’s $148 peak. This leaves industry insiders clueless about the price direction of their products, not an easy way to run a business. They understand rig counts, tanker deliveries, and depletion rates, not commitment of traders reports, Bollinger bands, and Fibonaccis. No doubt it was their carping that brought regulators to pressure Deutsche Bank to shut down its double long oil ETN (DXO). Of course, this all means the consumer is getting shafted, paying $3.39/gallon at the pump, instead of $2. This premium is causing a drag on the economic recovery as well. Europeans and Japanese who are paying up to $10/gallon are wondering what we are bitching about. Bring on a “W” recession and poof!, that premium disappears, as it did last year.

Sep 04 09:46 AM