With the US Presidential election more than a week behind us and, with Republicans controlling the Senate and House as well as the White House, the so-called “Trump trade” is well underway. One might expect that a large part of that would be a bullish move in US oil stocks but, while that has happened to some extent, the exuberance of the market has been tempered by the fact that crude has been mired below $70, close to its 52-week lows.
The main reason for that seems to be the perception of relative weakness in the Chinese economy, although, as I have said over the last few weeks, the pro-Russia and “drill baby, drill” policy proposals from Donald Trump during the campaign suggest quite significant increases in the supply of crude, which have at least put a ceiling on WTI.
From a stock investor’s perspective, though, the price of oil is not the biggest concern right now. As long-term holders of oil and energy stocks know only too well, the commodity price fluctuates but the inevitable relationship between price, supply, and demand ensures that, over time, it always returns to the mean. So, given that, and given the fact that pretty much all US oil and gas industry stocks have risen since the election, is there a viable strategy for those that are still sitting on cash?
There is, but the key is to be selective in terms of which stocks to buy.