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Some turn bullish on stocks, especially energy stocks

October 22nd, 2008 · No Comments

We wrote before about this. Supply of energy might very well be impacted more than demand, especially in the longer-run. While share prices have factored in a collapse in energy prices, the outlook for them, especially if you’re able to look a year or so ahead, is brightening by the minute.

The economics is really pretty straightforward. Yes, demand for energy is hurting because of the crisis in the developed economies. But demand for energy still grows in developing countries.

In the meantime, investment in new exploration and infrastructure to develop and market new energy sources takes a hit because of the credit crisis and the much lower energy prices. Investment was already falling short of future needs because of energy nationalization.

Most of the worlds energy reserves are under control of regimes which wholly or partly get their legitimacy from the ability to spend the energy bounty, and they have no incentive to waste money on investment.

These dynamics can only set us up for much higher energy prices when the world economy recovers, as it will. In the meantime, there are many bargains to be had. This is a unique opportunity, in our view.

Icahn Bullish on Energy, Pipeline Companies
By: Dan Weil

  • Gadfly investor Carl Icahn sees plenty of investment opportunities, despite the fact that the United States is suffering through its worst financial crisis in at least 70 years.
  • “This one is more unique and more worrisome (than previous downturns) because of the banks,” Icahn told Crain’s Investment News.
  • While he expresses caution about investing now, Icahn talks up the energy and pipeline sector.
  • “Energy has gotten so killed,” he says. “Some of these energy stocks and pipeline companies are very cheap right now.”
  • Senior bank debt also represents an attractive investment, Icahn says. “The (senior) debt that the banks loaned to the private-equity groups, for instance, is selling quite cheaply. It might go lower, but it’s quite cheap.”
  • He notes that the debt offers 15 percent to 16 percent returns with little risk.
  • Icahn also sees pharmaceutical companies benefiting from buying biotechnology firms. But he declined to identify any specific companies.
  • Icahn recommends caution despite the manifold opportunities.
  • “I think there are opportunities, and everybody’s got to decide for themselves how much cash you have and how much staying power you have,” he says.
  • Hedge fund manager Doug Kass also is bullish on stocks, he explained on TheStreet.com.
  • Kass’s reasons: “Credit mending, the banking fix is going global, corporate balance sheets are healthy, inflation has peaked, housing and consumer confidence have hit bottom, and takeover activity is on the rise.”

Tags: Commodities