Exxon and Chevron reported weak third quarter results.
The reports confirm that sluggish demand due to COVID-19 remains unchanged.
Two proponents agree that oil stocks should be sold to offset capital gains elsewhere.
Oil giants Exxon Mobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX) both reported their respective third quarter results, which show that the negative impact of the COVID-19 pandemic is reflected in weak demand. So what’s next for the oil giants?
Oil collapsed before 2020
Oil and energy prices have already fallen before the beginning of 2020, said Danielle Shay, Simpler Trading Director Of Options, on CNBC’s “Trading Nation”. In fact, the energy company began showing signs of weakness as early as 2018, and the pandemic only added to the already bearish tale.
Investors who want to take a position in the room must ask themselves, “how much pain am I willing to endure,” she said. At the current state of affairs, there are no indications as to when or if the trends will change for the better.
Perhaps energy places will remain deflated for at least another six to nine months, she said.
“If I was in that place, I would reduce the losses, accept the tax loss and move on with my life and invest my money elsewhere,” Shay said.
Here is a summary of Exxon’s third-quarter report and Chevron’s earnings for the same quarter.
Investors have big profits elsewhere
Many investors are sitting on strong gains in other market sectors, especially big tech and FAANG stocks, added Piper Sandler’s Craig Johnson to the conversation. As such, oil stocks are a prime candidate for investors to offset some of their capital gains and reduce their tax bill.
Looking at the Energy Select Sector SPDR Fund (NYSE: XLE), none of the technical indicators even point to a recovery, he said. The top three single stocks that dominate the ETF, including Exxon, Chevron and Kinder Morgan Inc. (NYSE: KMI) – none of which have bullish indicators.
As oil stocks slowly fall back to March lows, one could conclude that there is “no hope” for the sector at the moment, he said. Exxon in particular is on the verge of breaking its March low of $30.11, with stocks falling to $32.01 on Friday.
Should Exxon or any of the other oil stocks fall below their March lows, this could lead to even greater weakness.
Finally, investors who want to replicate the composition of the S&P 500 index with oil stocks by allocating 2% of assets to the sector should consider doing so.
“I think that the energy sector should probably just be put aside until we get clear signs of a turnaround,” he said.