Forget politics and religion. One of the biggest debates on Wall Street these days is whether oil and energy stocks are toxic or terrific.
In some ways, it looks like a smart move. Oil plunged below $45 a barrel in January. Back then, people couldn't seem to sell energy stocks fast enough. In recent weeks, oil has staged a mini-rally. Now it's trading around $60 a barrel.
That's still far from the glory days of over $100 a barrel that the industry saw as recently as last summer, but for drillers, it's a lot easier to make a profit when oil is back around the $60 mark. Bank of America thinks "the bottom is well behind us."
Stay away from oil?
But there are still plenty of naysayers. Goldman Sachs (GS) just predicted that oil will return to $45 a barrel in the fall. Cheap gas prices should make many Americans happy and help boost the U.S. economy, but they won't aid corporate energy profits.
Prominent investor Jeffrey Gundlach has gone as far as saying that it "makes no sense" to buy oil or energy stocks now.
"Too many people think it's cute to make a distressed play on energy," said Gundlach, founder of DoubleLine Capital, which manages over $63 billion. "Usually the people who buy because they think it's clever end up selling to other people at a lower price."
Valuations are still high
Oil prices may be lower than they were a year ago, but the stocks don't look that cheap, according to research by investment strategist Ed Yardeni.
"The energy earnings outlook still remains pretty dismal compared to a year ago" says Yardeni.
How to play it...safe
Most investors already have exposure to energy because they own mutual funds that invest in many U.S. stocks from different industries. So if energy rebounds, you get a win. And if it plummets again, you are protected somewhat.
If you want to go further than that, you will probably want to do your homework and only buy certain energy stocks (that's what the hedge funds did) or buy a fund that just tracks the crude oil price.
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