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How To Play The Energy Market In 2021

As happy as we all were to bid adieu to 2020, it has quickly become obvious that just flipping a page on the calendar wasn’t really enough to make things better. The year is but a week old, and we have already seen record Covid infections and deaths in the U.S. and an unprecedented attack on the Capitol Building by a mob. Despite all that, though, the stock market and, more relevant here, the oil markets, have had a strong first week of the year. Can that continue, and if so, how can energy investors best take advantage?

The answer to the first question is yes, at least when it comes to oil and energy, and at least for a while.

The stock market as a whole certainly looks to be fully valued at best. We are hitting new highs, even as the evidence begins to show that December marked a big reversal in the recovery from the March shutdowns as Covid regained ground. That doesn’t mean that we are about to collapse, but it does mean that the anticipated growth that is already priced into stocks will probably be delayed. That in turn suggests that upside in the broad market will be limited for a few months.

Still, on a relative basis, stocks are the place to be. Even with the recent bounce back in yields, the 10-Year will get you around 1% a year, and you can easily beat that with dividend-paying stocks that also offer the possibility of capital gains. Yes, they are riskier, but is buying stock in a solid company with a good balance sheet that pays a 5%…

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