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This Irrational Move In The Market Could Be A Great Trade

Overnight here in the U.S., when the British energy company Centrica announce the sale of their U.S. business to NRG Energy (NRG), the shares in the two companies moved in opposite directions. On the London Stock Exchange, Centrica posted record gains of nearly forty percent as traders cheered the company’s exit from the depressed American energy market, while in the pre-market in the U.S., NRG dropped around six percent. That stock has since recovered, however, and looks set to open roughly unchanged from yesterday’s close.

So, which move should energy investors be paying attention to in NRG, the drop or the bounce?

The drop was understandable in some ways. Any talk of expanding in the U.S. energy markets will be met with pessimism right now, and not just because of the presumably temporary blow from the pandemic either. Energy has been underperforming the rest of the American market for around a decade, through several boom and bust cycles. In that context, it is no surprise that shelling out $3.6 billion to expand in that market prompted a negative initial response from traders.

NRG’s purchase, though, has little to nothing to do with those booms and busts. They were about the rise and fall of shale oil, upstream and midstream operations, while this is about expanding NRG’s retail footprint. That may not prove to be a bad idea over time.

Expanding into a depressed market is what energy companies of all stripes do all…

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