MacroPass™: David Hay On The Potential Upside Of Unloved Energy Stocks

This week’s installment of our popular MacroPass™ service for premium members of this Substack comes from David Hay, the freshly-retired former CIO of Evergreen Gavekal and now full-time author of the Haymaker investment newsletter.

Stocks in the energy sector have been crushed of late, apparently pricing in a coming recession.

David thinks that the carnage has largely run its course at this point, and that more upside than downside potential for the sector now exists. For these stocks to fall much further, the scale of the potential recession would have to be abnormally large. And history shows that when sectors get battered down this severely, the subsequent rebound is often equally violent.

David then shares his investment strategy for this sector, as well as names several companies — including several midstream energy plays — that he assesses as particularly interesting candidates for investors to consider right now.

David’s full write-up is provided to premium members below.

As a reminder, MacroPass™ is a weekly rotating selection of premium analysis from many of the big thinkers interviewed on Thoughtful Money.

To-date that list of contributors includes experts like Lacy Hunt (Hoisington), Stephanie Pomboy (Macro Mavens), Danielle DiMartino Booth (QI Research), Tom McClellan, Michael Howell (Capital Wars), Darius Dale (42 Macro), Doomberg, Ted Oakley (Oxbow Advisors), Kevin Muir (The Macro Tourist), Alf Peccatiello (The Macro Compass), Lance Lambert (ResiClub), Ed Yardini (Yardini Research), David Hay (Haymaker), Melody Wright (M3_Melody), David Stockman (Contra Corner), David Brady (FIPEST Report), John Rubino, Adam Kobeissi (The Kobeissi Letter), Sven Henrich (Northman Trader), Jeff Clark (The Gold Advisor), Charles Hugh Smith, Steven Bavaria (Inside the Income Factory®), Chris Whalen (The Institutional Risk Analyst), Felix Zulauf, Jesse Felder (The Felder Report), Brent Johnson (Macro Alchemist) and Anna Wong (Bloomberg Economics).

Recent MacroPass™ reports in this series include:

• Anna Wong on the expected impact of the 'Liberation Day' tariffs

• David Stockman on just how out-of-control the federal deficit is

• Kevin Muir on 'The Bear Case' for markets

• Doomberg On the USA's fiscal outlook

• Michael Kantrowitz' on uncharacteristic economic green shoots

• Lacy Hunt's latest Quarterly Outlook

If you’re already a premium subscriber to this Substack, just continue below to read David’s full write-up.

But if you’re not (yet), read the start of it below and consider upgrading to premium and access the full version, as well as all past and future MacroPass™ content.

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Are Energy Stocks the New Gold Miners?

(….As in detested)

It's no exaggeration to say the energy sector is viewed as radioactive as gold miners were not long ago. Basically, the energy sector, and especially the oil stocks within it, appear to be fully or, at least, mostly pricing in a recession. Unless it is a truly brutal one, their downside may be limited from here.

Also, per the energy savvy team at Cornerstone Analytics, oil prices consistently rise significantly a year after a recession ends. Moreover, the deeper the decline during a downturn, the greater the price rebound, which makes intuitive sense. Additionally, oil shares themselves tend to anticipate better times well in advance of a recession’s conclusion. Lastly, many of these companies are oil and gas producers. Natural gas prices are actually up significantly from last year and they tend to be less economically sensitive.

It continues to be my recommendation to