Trading Tips

This Sector’s So Hated that It’s Worth Buying Now

August 06, 2019 Trading Tips
Trading Tips
This Sector’s So Hated that It’s Worth Buying Now
Show Notes

Investing is a lot more than just the numbers—earnings, sales, future financial projections, you name it.

There’s a mental and emotional aspect too.

That’s where you get extreme moves.

For instance, during the tech bubble in the late 1990’s, folks just kept bidding up shares of companies with no future prospects to be profitable within five years. But they felt that shares had been going up and would keep going up. They were right—until the bubble popped.

At the other extreme, after an asset has been falling for a while, people start to project that it will go to zero. Nobody felt enthusiastic about buying stocks in early 2009, although a decade later, that’s proven to be a great trade.

Besides those big-picture extremes, individual stocks and sectors can go in and out of favor far more often. It’s buying the ones out of favor—and selling the in-favor markets—that lead to large, consistent profits over time.

One such space is natural gas. Like stocks in early 2009, it’s looked ugly for a while now—seemingly with no end in sight.

Production is high, so high that we have a lot of supply swimming around to keep prices down. And prices are down 50 percent from last winter—and nearly 30 percent since the start of 2019.

Of course, part of the explanation is seasonal. Natural gas is great for heating, and in the middle of a summer heat wave, that’s the last thing on anyone’s mind. But some of the explanation for low prices today is a feeling that the whole sector will remain underpriced forever.

But winter will come. Production will decline, whether from shale producers going bankrupt or today’s lower prices leading to shutdowns. Nothing stays out of favor forever, and out-of-favor names that move in-favor tend to get a big percentage move higher.

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