12/06/2019

Diversifying with Energy and Is It a Death Spiral or Sale in Tobacco?

Diversifying with Energy

Emerging markets have shown to be a disappointing diversifier for many years. Is there a better way to get uncorrelated, or less correlated, returns for US investors? Emerging market indices are characterized by government-controlled banking and energy companies. Looking closer at the energy complex, we suspect valuations be suitably cheap, so cheap in fact, to suggest the best risk reward trade is in domestic producers of energy, particularly those with proven reserves, strong cash flow, and high dividends.

Dividend yields in the Energy sector now exceed 4% and with adding buyback yields gives a combined yield of over 6%, a very high return indeed. Current oil prices, below production costs for much of the world, would appear to make these returns sustainable.

Death Spiral or Sale in Tobacco?

Handicapping lawsuits is considered beyond the scope of many investors. Tobacco stocks, viewed by many as the most sinful of the sinning stocks, are often reflexively avoided. Recent concern over vaping have put additional downward pressure on this sector. Might there be a trade opportunity to trading where others are even afraid to look?


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About Paul Blinn 16 Articles

Managing Director of Toreador Research and Trading

About Paul Blinn 16 Articles

Managing Director of Toreador Research and Trading