Investors betting on a fall in shares of energy companies could have their "faces ripped off' if oil prices continue their recovery, a money manager told CNBC.
Oil prices have recovered in recent sessions to trade near $40 a barrel since hitting their lowest levels in over a decade earlier this year
While some investors are predicting that market expectations for oil at $50 a barrel might be too fast, and too soon, Bill Smith, chief investment officer and senior portfolio manager at Battery Park Capital, told CNBC the energy sector will find equilibrium by the second quarter of 2016. And it will not be pretty for those holding bearish trades.
Speaking to CNBC's "Squawk Box", Smith said if indeed oil prices stabilize, much-battered energy stocks will follow crude prices higher.
"It's going to be a short covering rally that rips people's faces off," said Smith. "It's going to be ugly."
Battery Park Capital has assets under management worth $340 million.
Short-selling refers to selling an asset in the hope of buying it back at a lower price later.