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Energy Stocks: Are They Finally in a Bull Market?

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  • (1:00) - Fake Out Rally’s For Energy Stocks
  • (7:30) - When Is A Good Time To Start Investing In Energy?
  • (15:45) - Tracey’s Top Stock Picks
  • (29:00) - Episode Roundup: XOM, CVX, COP, PXD, EOG, FANG, MGY, XLE, XOP
  •                 Podcast@Zacks.com

 

Welcome to Episode #287 of the Zacks Market Edge Podcast.

Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.

This week she’s going solo to discuss the one sector that has entered into a new secular bull market: energy.

The Most Hated Sector?

Energy has been the most hated sector for several years but after oil plunged, and actually went negative, in the coronavirus sell-off last year, many investors gave up on the sector.

Over the last 5 years, the Energy Select SPDR ETF (XLE - Free Report) , is down 27% even as the S&P 500 has rallied 100% and the NASDAQ has soared 175%.

Who would buy energy stocks with that track record?

How Bear Markets End

While bull markets end with a bang, bear markets end with no fanfare at all.

In fact, most never even notice that a bear market has ended because the asset class is usually so ignored, and little followed, that no one cares about it anymore.

Such is the case with the oil stocks in 2021, even though it was the best performing S&P 500 sector in the first six months of the year, investors have stayed out of the stocks.

It’s just 3% of the S&P 500 compared to technology stocks, which are 40% of the index. 

How to Invest for the Energy Bull Market

But what if the 13-year bear market IS finally over in the energy sector?

How should investors be playing it?

Many investors have already been diving in on the big oil companies, such as Exxon (XOM - Free Report) and Chevron (CVX - Free Report) because they are the biggest companies in the sector and pay juicy dividends, yielding over 5%.

Exxon’s dividend is paying 6% and Chevron’s is paying 5.3%.

But while they should be beneficiaries in an energy bull market, the nimble exploration and production companies should be even bigger winners.

Buy the Best Balance Sheets

There are a lot of explorers investors could choose from. To narrow down the list, look at those with the best balance sheets.

Pioneer Natural Resources (PXD - Free Report) is one of those. It’s a big driller in the Permian with a market cap of $41 billion.

It’s paying a dividend, yielding 1.9% and has also been paying an additional variable dividend as its free cash flow soars in these strong market conditions.

Diamondback Energy (FANG - Free Report) is another big Permian explorer. It recently announced a $2 billion share repurchase program in addition to its quarterly dividend, which is currently paying a 2% yield.

What else should you know about the energy stocks?

Tune into this week’s podcast to find out.