I think it’s important to take advantage of ASX share market volatility when we can.

Volatility is a key feature of shares. Each day there are different buyers and sellers. Obviously there will be different views about what price people are willing to buy and sell at.

This coronavirus period of time has seen some of the strongest volatility in decades. I think it’s important to take advantage of the lower share prices. Collectively, investors are only willing to sell their shares at lower prices when there’s something to actually worry about. And there’s always something to worry about. Eventually that particular worry will pass, just like the GFC. 

The price we pay for our investments is the biggest factor for deciding our future returns. If you can buy during periods like this when prices are a lot lower then you’ll boost your future returns significantly.

These low share prices don’t last forever. Just look at how the ASX share market volatility has lowered and prices have recovered strongly since 23 March 2020 even though the actual economic numbers like unemployment just get worse and worse.

What ASX shares on the share market are opportunistic buys due to volatility?

A number of exciting shares like Pushpay Holdings Ltd (ASX: PPH) were a lot cheaper a few weeks ago, but I wouldn’t describe those shares as opportunistic any more. They’re still solid buys though.

I think ASX share market volatility have made these shares buys: diversified property business Brickworks Limited (ASX: BKW), water entitlement business Duxton Water Ltd (ASX: D2O) and investment business Magellan Global Trust (ASX: MGG).

More reading

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ASX energy shares are poised to finish the trading week on a stronger footing after the oil price rallied overnight.

But the dramatic recovery for these stocks from their bear market low may have run out of fuel!

Morgans is sounding the warning bell even as the WTI oil price surged by US$65 to US$27.66 a barrel in less than four weeks since crashing into negative territory. I suspect that’s a record bounce over the timeframe for the WTI benchmark.

The more relevant (to Australia) Brent crude price didn’t slip into negative, but it’s staged a pretty stellar 62% climb over the same period to trade at US$31.13 a barrel.

Running ahead of the market

“We remain long-term oil bulls, but it is hard to maintain this positivity towards the sector when key energy stocks so strongly outperform oil prices,” said the broker.

By its reckoning, the jump in Woodside Petroleum Limited (ASX: WPL) share price and Oil Search Limited (ASX: OSH) share price imply an oil price of around US$47 a barrel.

Meanwhile, the Santos Ltd (ASX: STO) share price will need an oil price of US$42 a barrel to justify its recovery.

The long road to recovery

“We view this level of market optimism as dangerous given not only the massive demand impact from Covid-19 restrictions, but also because of new macro risks emerging,” said Morgans.

“Key amongst these is the growing risk of a new Trade War breaking out between the US and China, with tensions escalating from the ongoing health and economic crisis.

“Even barring a new trade war, we expect oil demand loss (currently at an unprecedented c.30mb/d) will take multiple years to recover, with the market not yet in a position to accurately analyse all of the fallout.”

Going nowhere fast

The chance of oil prices jumping back to over US$40 a barrel looks pretty slim even as Goldman Sachs sounded a positive note on the commodity.

The broker believes that the oversupplied market is heading back towards a deficit next month, according to a report on Reuters.

Oil production cuts by OPEC and Russia will limit supply as demand picks up pace from the restarting of major economies like China and the US.

Oil price forecasts

While that means we may have seen the lows for oil, Goldman Sachs thinks oil prices may be stuck at current levels for a while. It’s forecasting US$30 a barrel for Brent and US$28 per barrel for WTI during the Northern Hemisphere summer months.

“We believe that the next stage of the oil market rebalancing will be one of range-bound spot prices with the most notable shifts being a decline in implied volatility as well as a continued flattening of the forward curve without long-dated prices rising yet,” said Goldman Sachs.

Here come the downgrades

Investors may have to wait a few years to see the oil price catch up to the share prices of our major energy stocks.

On that sombre note, Morgans lowered its medium- to long-term forecasts on the Brent oil price. This meant that the broker also had to downgrade its recommendation on Oil Search, Woodside and Santos to “hold” from “add”.

More reading

• 5 things to watch on the ASX 200 on Friday
• 5 things to watch on the ASX 200 on Thursday
• LNG spot price surge benefits ASX 200 shares
• 5 things to watch on the ASX 200 on Wednesday
• How many ASX shares should you have in your portfolio?

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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ASX 200 energy shares have been hit hard in 2020. First, there were concerns surrounding coronavirus which sent the S&P/ASX 200 Index (ASX: XJO) tumbling lower in late February. Then came an oil price war between Saudi Arabia and Russia which spooked investors even more and eventually sent the oil price into negative territory last month.

You might be looking at the markets and thinking now is not a good time to buy ASX 200 energy shares. However, I think it could be quite the opposite. Here are a couple of my top picks for energy companies that could be in the buy zone in 2020.

2 ASX 200 energy shares to buy today

I like the prospects for AGL Energy Limited (ASX: AGL) shares. AGL is one of the largest energy producers in Australia and I believe it’s in a strong competitive position.

The Aussie electricity market is largely dominated by AGL, EnergyAustralia and Origin Energy Ltd (ASX: ORG). The AGL share price has plummeted 21.28% lower this year but I feel it may have been oversold.

Sure, the oil price war has hurt most ASX 200 energy shares. However, east coast electricity prices remain high, despite the ACCC recommending further intervention. These ongoing high prices could help stabilise FY20 earnings despite potentially lower volumes.

Another issue affecting the sector is less commercial energy use. COVID-19 restrictions have forced many employers towards a remote working model which means less energy consumption by businesses in our cities. However, this also means higher residential energy use which could help to balance things out for AGL.

Aside from AGL, I also like the look of Origin Energy. Given what’s happening to oil prices and the supply-demand dynamics, I think investing in the ASX 200 oil producers is a risky bet. There’s a lot of uncertainty surrounding oil and, as such, I feel Aussie utility companies could be a better option right now. As a long-term investor, I’m happy to trade some potential upside for the defensive qualities I see in energy ‘gentailers’ like AGL and Origin.

I think Origin is in a similar position to AGL right now. Given we’re investing for the long-term, I also think both AGL and Origin could benefit from an increase in renewable energy investment. That means, moving forward, AGL and Origin could tick all the boxes as strong dividend shares with solid medium and long-term outlooks.

Foolish takeaway

Investing in ASX 200 energy shares is certainly not for everyone. Diversification is key, which means that AGL and/or Origin shares could form part of your broader portfolio construction. I would say it’s still a relatively speculative play right now which means I wouldn’t be going all in. However, I do feel there are long-term rewards on offer for investors willing to roll the dice with ASX 200 energy shares in 2020.

More reading

• Want to invest like Warren Buffett? Buy and hold these ASX 200 shares
• Broker tips 10 ASX 200 shares for a post-coronavirus recovery
• These ASX 200 shares just crashed to multi-year lows
• 5 things to watch on the ASX 200 on Friday
• Is this ASX 200 REIT a bargain right now?

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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