The energy sector has been the weakest performer in the S&P 500 Index this year, and it has been out of favor for a long time.
The world oil market has changed, with the U.S. now the largest producer, with exports outweighing imports. But on Monday, there seemed to be new enthusiasm for U.S. energy stocks as investors digested the U.S.’s “phase-one” trade deal with China.
More on the U.S.-China trade negotiations here:
• Phase one of U.S.-China talks was hard — and the next part will be even harder
• China says it will put off tariff hike on U.S. autos, other goods following trade deal
The setup
Here’s a 10-year chart of continuous quotes for West Texas Intermediate crude oil CL00, -1.34%
FactSet There has been a notable recovery from the doldrums of early 2016, but investors who were burned when the 2015 rebound was interrupted haven’t been in a forgiving mood. You can see the subsequent setback in 2018.
Here’s how the 11 sectors of the S&P 500 SPX, +0.49% have performed this year and last, and over the longer term:
| S&P 500 sector | Total return – 2019 | Total return – 2018 | Total return – 3 years | Total return – 5 years | Total return – 10 years |
| Energy | 8% | -18% | -15% | -5% | 36% |
| Health Care | 18% | 6% | 53% | 60% | 288% |
| Materials | 22% | -15% | 26% | 44% | 139% |
| Utilities | 23% | 4% | 44% | 65% | 193% |
| Real Estate | 24% | -2% | 34% | 48% | 251% |
| Consumer Discretionary | 25% | 1% | 50% | 87% | 380% |
| Consumer Staples | 26% | -8% | 30% | 50% | 207% |
| Industrials | 29% | -13% | 33% | 63% | 250% |
| Communications Services | 30% | -13% | 15% | 49% | 146% |
| Financials | 31% | -13% | 38% | 73% | 216% |
| Information Technology | 46% | 0% | 99% | 149% | 406% |
| S&P 500 Index SPX, +0.49% | 29% | -4% | 48% | 75% | 253% |
| Dow Jones Industrial Average DJIA, +0.28% | 24% | -3% | 52% | 84% | 246% |
The sector list is sorted by ascending performance this year through Dec. 13. Energy brings up the rear for all periods because of the historical declines in oil prices in 2015 and 2016.
Appetite for energy
Prospects of an easing of trade tensions and an economic recovery in emerging markets fed enthusiasm for energy stocks Monday, as crude-oil futures headed to a three-month high.
A look at a “stock-bond ratio” led Will Geisdorf of Ned Davis Research to select 10 ETFs for investors to take advantage of current market conditions, with three oil-industry funds included.
In his daily Energy Report on Monday, Price Futures Group senior account executive Phil Flynn wrote that “China’s oil demand should only get better,” based on recent economic data.
Analysts’ favorite oil stocks
There are 28 stocks in the S&P 500 energy sector. Sell-side analysts polled by FactSet have majority “buy” or equivalent ratings on 20 of them. Fifteen have “buy” ratings by at least two-thirds of the analysts. Here they are, sorted by percentage of favorable ratings:
| Company | Ticker | Share ‘buy’ ratings | Share neutral ratings | Share ‘sell’ ratings | Closing price – Dec. 13 | Consensus price target | Implied 12-month upside potential |
| Diamondback Energy Inc. | FANG, +0.62% | 97% | 3% | 0% | $85.09 | $124.00 | 46% |
| ConocoPhillips | COP, +0.84% | 91% | 9% | 0% | $62.70 | $73.70 | 18% |
| Pioneer Natural Resources Co. | PXD, +0.26% | 90% | 10% | 0% | $139.99 | $178.01 | 27% |
| Marathon Petroleum Corp. | MPC, +0.79% | 89% | 11% | 0% | $58.61 | $80.65 | 38% |
| Baker Hughes Co. Class A | BKR, +0.48% | 86% | 14% | 0% | $23.64 | $28.75 | 22% |
| Williams Cos. Inc. | WMB, +1.28% | 84% | 16% | 0% | $22.71 | $27.57 | 21% |
| Halliburton Co. | HAL, +0.04% | 84% | 16% | 0% | $23.99 | $26.02 | 8% |
| Noble Energy Inc. | NBL, +1.28% | 83% | 17% | 0% | $22.38 | $28.45 | 27% |
| EOG Resources Inc. | EOG, +1.74% | 83% | 17% | 0% | $75.49 | $99.03 | 31% |
| Schlumberger NV | SLB, -0.45% | 81% | 19% | 0% | $39.00 | $42.28 | 8% |
| TechnipFMC PLC | FTI, +0.15% | 81% | 16% | 3% | $20.00 | $28.56 | 43% |
| Valero Energy Corp. | VLO, +0.72% | 80% | 20% | 0% | $93.81 | $108.78 | 16% |
| Concho Resources Inc. | CXO, +1.29% | 79% | 18% | 3% | $78.75 | $100.74 | 28% |
| Chevron Corp. | CVX, +1.31% | 72% | 28% | 0% | $117.96 | $136.09 | 15% |
| Phillips 66 | PSX, +0.48% | 70% | 30% | 0% | $112.99 | $129.39 | 15% |
| Source: FactSet | |||||||
You can click on the tickers for more about each company.
The worst-rated S&P 500 energy stock (with 19% “buy” ratings) is Occidental Petroleum OXY, +0.80%, which famously outbid Chevron CVX, +1.31% to pay a fat premium to acquire Anadarko Petroleum in April. That deal was completed in August. Carl Icahn skewered Occidental’s CEO, Vicki Hollub, and the company’s board of directors in a letter to shareholders on Aug. 28, which all investors should read.
Don’t miss: Wall Street’s top dividend stock picks for 2020
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