Betting on Clean Energy
Featuring Rick Bensignor
Published on: August 13th, 2019 • Duration: 15 minutesRick Bensignor, CEO of The Bensignor Group, examines the recent volatility in the stock market and drills down specifically on the energy sector. He discusses the cyclical downtrend in oil prices, notes society’s transition to clean energy, and explains how investors should play the historical shift. In this interview with Justine Underhill, he also pinpoints key levels for a particular clean energy ETF. Filmed on August 8, 2019.
JUSTINE UNDERHILL: Welcome to Real Vision's Trade Ideas. Today, we're sitting down with Rick Bensignor, CEO of the Bensignor Group. It is great to have you here.
RICK BENSIGNOR: Justine, thanks for having me.
JUSTINE UNDERHILL: All right, so before we get into your specific trade idea today, could you give us a little bit of an overview of what you see going on in the markets right now?
RICK BENSIGNOR: It's been quite a week. So, you had Jay Powell in the FOMC a week ago, Wednesday, coming out with a quarter point cut, which is what the street expected. Apparently, it wasn't good enough for the President who 24 hours later, essentially changed the entire market environment by imposing this tariff threat on the Chinese effective September 1st. And the markets have been in an uproar since, the S&P fell as much as I guess, about 200 points or so into Wednesday, slow this week. And we're coming down, we're rallying today. It's good to see.
I think for now, the spike in volatility is done, will stay calm for a bit and I suspect through the rest of August, we probably will not take out the VIX 25 level that we saw as the high of the spike, but no reason to also think that we slide back to the 12 or 14 in the VIX. You're going to have elevated volatility in general compared to where we were. And also, as August goes on, Justine, you have to remember that Wall Street takes- it's a very heavily vacation month, especially the last week of the month. So, the last week of August is the second most vacation week of the year on Wall Street behind Christmas.
So, you can also get a couple of spikes going on just as less and less people are at their desks. You can get some slightly exaggerated moves. At this point, if the S&P got back above 2950, which a lot of people use as the psychological level, because that had been the old highs, my guess is you probably get a spike high off of that. And you fade that. I don't think there's any reason for the S&P to turn around and make new all-time highs above 3028 that we saw just over a week ago. And at this point, I don't think we probably take out the 2800 level on the downside so I could see us trading in a 100-point range or so for the next several weeks, just as things calm down a bit. But you also never know when a tweet or something out of left field comes that changes the game.
JUSTINE UNDERHILL: Well, so then in this current environment, what sectors are you specifically looking at?
RICK BENSIGNOR: I like the defensive sectors in general. I put out a pair trade last week to clients to buy Staples vs. Utilities. We just got into that yesterday as the ratio pulled down into where we were looking to get in. I'd say your classic defensives, but I'm still willing to hang with tech, I don't want to overweight tech necessarily, but I also don't want to be out of tech. And if you look at equal weight tech vs. weighted tech this year, they're trading fairly close to together, which means it's not a Fang-led rally as if only the high cap names in tech have led this whole higher, you've had breath that's been good. And of course, breath got hit over the last week because everything came off.
But when I see QQEW, Equal Weighted NASDAQ 100, pretty much in line with QQQ, the Weighted NASDAQ 100, which is what most people trade, it gives me a pretty good clue that you have broad participation in tech. And it's the sector that has over time, taken over from what 50 and 100 years ago was the growth part of the market, industrials, transportation used to be part of Dow Theory, and you wanted to see those two sectors come together. Tech is really the growth part of the market. So as long as you think that there's still some semblance of long term growth in the market, you still have to have your exposure in tech.
JUSTINE UNDERHILL: And then turning to the worst performing sector of the market, energy, what do you see going on in that space?
RICK BENSIGNOR: So, energy has been in absolute disaster. I've run about it so many times to clients this year. As of a week ago, once again, we are on- not only lows for the year relative to the S&P, so in relative terms, XLE, the S&P energy ETF divided by let's say SPDR, SPY, which represents the whole S&P 500- again, closed on a new low for the year. But it's also on 19-year lows versus the S&P. For 10 years, energy investing has been in utter disaster, only two years of the last 10 has energy outperformed the S&P, but in the big picture, it's been a complete dog.
So, it's definitely a problematic sector. Everybody who's trying to upgrade or pick a bottom has not effectively done so. And even though XLE has only been trading since 1999, the S&P and energy index existed before them, but there's only been the ETFs since 1999. We're actually, in ETFs terms, getting very close to the all-time low that energy is traded versus the S&P. So, I've got to see some models that we'd look at, something give me some sense that some turnaround is happening before I'm going to upgrade this sector.
JUSTINE UNDERHILL: And you've been actually shorting XOP since about February of this year as part of a pairs trade.
RICK BENSIGNOR: Yeah, so our homerun trade for institutional clients this year has been to be long solar names through the ETF TAN, T-A- N, and short XOP, oil and gas, against it. In one of those very happy times in life that both sides of a pair trade work for you, your long goes up and your short goes down, this pair trade has made, as of last Friday, 39.9%. And we're talking about 40% gain on a pair trade in the energy space simply being long newfangled energy, the solar side. And being sure traditional energy, oil and gas.
JUSTINE UNDERHILL: Is this is a trade that you would consider putting on now? I know you put it on in February, but is it something that you'd-
RICK BENSIGNOR: We're down to a quarter of the trade left. We hit our targets about just shy of a month ago. So, we've taken off three quarters of the trade. But because this continues to make new highs, I said, what the heck, let's let 25% go. So, would I first get into it now? I would have to. It's run so much since we got in. I would have to really look if I'd put it on now. But conceptually, I'm going to stick with the idea that- and this is something that I said as far back as October last year, when oil had peaked at $77 and started coming off and I identified same thing. I was on TV at Bloomberg and I said that is not just the trading high for oil, that's the cyclical high for oil. We are not going above that.
And a lot of people gave me backlash and oil is going 100 and oil is going to 200. I don't know if it ever will. I don't think so. We just, yesterday, got down under 51 again in crude, it's bouncing today. So now over the last month, month and a half, I think we've got two lows under $51. If we go underneath that again, oil is probably going to $48 to $47. And the street is just simply not looking for this.
JUSTINE UNDERHILL: So then how would you go about trading this area? Would you consider going short some oil stocks? Or would you consider going long some of the other solar energy stocks that you mentioned?
RICK BENSIGNOR: Conceptually, yes. I still like the idea of being long solar, short traditional oil stocks. At this point, again, you have to pick your time. But the trade that I want to talk about today and still think will work is another trade that I got our individual investor. So, I have two different newsletters and consulting arms, one handles institutional, one handles individual investors. The institutional trade was solar versus XOP. But for months also, we've been long on the individual investor side, the ticker PBW.
It's a clean energy ETF. And it's trading right now around $30 a share, and we got in at $26 and change. So in percentage terms, we've done nicely, we found the pocket that was the right place to be in, we've traded in and out a couple times because we keep hitting our targets and we'd lighten up. But what I've told clients is, this is one of those rare times that on the individual investor side, which is typically tactical trading, in fact, our report is called Tactical Trader Report. So, it's meant for short term, weeks to months, not long term.
This is one of those rare ideas that I actually think over years can work. The all-time high in PBW is $144 a share. It's trading at $30. I see no reason why this can't double in the next few years. So, I think that shorter term, we could probably get as high as maybe $34.50, $34.75, probably between now and year's end. So that from $30, that's still a very decent increase. But I could see the stock being a $60 or $70 stock in a couple years, too. I think there's just build up and it's going to keep coming and coming for the clean side of energy.
JUSTINE UNDERHILL: Is there a specific catalyst that you see bringing it up to $70?
RICK BENSIGNOR: The catalyst is just the continuance of move towards clean energy. More and more companies are investing on that side and reducing their infrastructure, capital expenditure on the traditional side. Now, some people have argued that's why oil will eventually go to $100 or $200 because there'll be less capital put in, yet demand globally will still always exist for oil. And I'm not saying it won't. But as we go to cleaner sources of fuel and electric cars and America keeps now being the number one producer of oil, and then we're exporting. We always used to be an importer, we're now exporting all over the place. I don't see oil getting to $100 in the crazy triple digit numbers that people are talking about. So, the catalyst to me is just the ongoing movement towards clean energy as the place to invest, it's where companies are investing. So, I think it's where the public wants to invest.
JUSTINE UNDERHILL: Is there a point that you would back out of PBW, that it started trending downwards or something else happened?
RICK BENSIGNOR: Well, two ways to answer that. Every trade has to have a stop. So yes, from a risk management point of view as a trader, yes, there is a place. I'll tell you that in a second. But in the bigger picture, if we went from $30 back down to let's say, $26, where we first got in earlier this year, for longer-term investors, I'd be all over this, because I don't think there's a lot of downside to the sector any longer. If you look at the long-term chart, it's been plenty of time getting beaten down from all-time highs falling into the 20s. And just hanging there for years. And then we started turning and going higher. And that's when I got on board.
I guess tactically as a trader, you're probably somewhere around the $27.70 level, couple of daily closes under that from a trading perspective might have me get out. But for an investor, I would welcome a move down and just put more money into it.
JUSTINE UNDERHILL: And you mentioned the $34 target by the end of the year. What do you see as the biggest potential risk between now and December for this?
RICK BENSIGNOR: The catalyst for this not to work between now and December would be more of a recessionary environment truly hitting in, rates coming much lower, companies halting their expenditures all around both in technology infrastructure and part of PBW is actually qualified as tech. Now, it's all energy related but solar names- some people look at solar names is really more technology than a pure energy type of expenditure. So, I think if companies reduce their infrastructure and capital spending, then you have a slowdown in growth. And that could be what doesn't allow this to keep going higher.
JUSTINE UNDERHILL: So, the risk of risk off environment basically. So, a lot of people like using ETFs because it gives them access to volume and a lot of different companies. This ETF has relatively low AUM, why would you like using this ETF versus going after individual names in this case?
RICK BENSIGNOR: You could go after the individual names, I'm not saying you couldn't. Generally for individual investors, I lean them towards ETFs. Because single stock risk is always big. Somebody misses a quarter, the stock's gone. I'm not willing to let a 30% drop occur overnight. And it can happen in any name these days if they missed. So to me, ETFs give you much broader diversification. It's the clean energy space. I'm also not a fundamental analyst. So, I'm not digging deep into these names to tell which one's good, which one's bad, which has the cleanest books, et cetera. I like the space. And this was one of the names that showed up on a screen months ago as a potential bottom in that space.
And that's what made me come up with it. 200 million other assets. No, it's not huge. If an institution wanted to come in with big size, that could be a problem. But for individual investors who are buying 100 shares, 500 shares, it's no problem. It's not a penny bid offer spread, there is a little bid offer spread to this name, but it's liquid enough to do anything you want to do.
JUSTINE UNDERHILL: All right. Can you summarize this trade in 30 seconds?
RICK BENSIGNOR: Sure. So, we like clean energy conceptually over the years to come. This trade is to get long PBW near current price, it's 30- ish or so, we think it could probably get to $34.75 by year's end, stop yourself out on it from a trading basis under $27.70. A couple closes under there, I can walk away. But longer term, this is a stock that easily could be a $60 or $70 stock.
JUSTINE UNDERHILL: Great. Rick, thank you so much for joining us today.
RICK BENSIGNOR: Justine, thanks for having me.
JUSTINE UNDERHILL: So, Rick is bullish on clean energy. Specifically, he likes the Invesco Clean Energy ETF, ticker symbol PBW. He recommends buying at current levels with a short-term target of $34.75 by the end of the year, and a stop loss of $27.70. Additionally, he likes the ETF as an investment with a target of $60 to $70 over the next two years.
Just remember this is a trade idea and not investment advice. Make sure to do your own research, consider your risk tolerance and invest accordingly. For Real Vision, I'm Justine Underhill.