Energy stocks could pull a Tesla and go parabolic in 2021, Fundstrat's Tom Lee says

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• Energy stocks could go parabolic this year and trade like Tesla did in 2020 as investors experience FOMO, Fundstrat's Tom Lee said in a note on Thursday.
• The trade is playing out so far in 2021. The S&P 500 Energy Index is up 13% year-to-date, while the broader S&P 500 has climbed less than 1%.
• With the sector making up just 2.5% of the S&P 500, few investors have exposure to energy stocks, according to Lee.
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Energy stocks could see a reversal in fortunes this year after a dismal showing in 2020 and stage a parabolic surge like Tesla, Fundstrat's Tom Lee said in a note on Thursday.

The energy sector fell 37% in 2020 and briefly saw oil prices dip into negative territory as the COVID-19 pandemic and ensuing travel restrictions sparked a collapse in demand. Over the same time period, Tesla soared 743% as the company managed to barely miss its 500,000 full-year delivery goal by only a few hundred cars.

But energy stocks are already starting to stage a rebound, with the sector up 13% year-to-date, while the broader S&P 500 has climbed less than 1%, Lee points out. On top of that, few investors have exposure to energy stocks, with the sector making up just 2.5% of the S&P 500.

This is the same recipe for FOMO, or the fear of missing out, that helped drive shares of Tesla higher in 2020, according to Lee. A surge in energy stocks could drive fund manager underperformance, given that "many institutional investors have ZERO weighting in energy," Lee said.

Read more: Cathie Wood's ARK Invest runs 5 active ETFs that more than doubled in 2020. She and her analysts share their 2021 outlooks on the economy, bitcoin, and Tesla.

A new source of buyers from fund managers worried about underperforming their benchmarks could coincide with fundamental improvements to energy companies, as they begin to reverse 4-years "of misery," according to Lee.

"If this happens, energy stocks could go parabolic in 2021," Lee said. 

Energy stocks could be supported by a decline in supply growth due to potential regulations from President-elect Joe Biden, Lee said, adding that demand is set to recover as a global economic recovery materializes.

"The re-alignment of the supply/demand outlook for Energy is the most dramatic of any sector," Lee explained. 

Read more: Global X's lithium and battery ETF returned 126% in 2020 as electric vehicle-driven demand surged. One of the firm's analysts shared 4 stocks he sees 'leading the rise' in the industry going forward.

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