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Buy Energy, Commodities, Money Managers Say

Stocks in this article: XOM SYT BG BAC C CAT EMR


As the protests have been staged in countries known for their oil output, crude prices have rocketed on supply-and-demand concerns, jumping above $100 a barrel. Gasoline prices have also climbed across the U.S.

With the rapid increase in oil prices, energy stocks are most attractive to money managers. Since crude spiked Feb. 18, 15 of the top 25 performing stocks on the S&P 500 are energy-related companies, including Chesapeake Energy (CHK) and Chevron (CVX).

The uprising in Libya ignited the jump in crude prices, but Mahn argues that the bigger threat is the contagion spreads across the Middle East. "It's a bigger concern especially if it spills over into Saudi Arabia and some of the bigger oil-producing countries."

Mahn cites a recent report by the U.S. Energy Information Administration (EIA) that states the U.S. is the third-largest producer of oil in the world, behind only Saudi Arabia and Russia. "We supply 50% of our own consumption," he adds. "Libya is a concern, and it will have an impact on short-term oil prices. But Saudi Arabia will step in and fill in any gaps. I don't think it will cause that many disruptions in the oil market."

While Mahn declines to make specific equity picks in the energy space, Nolte offers Exxon Mobil (XOM) as his pick, noting the company's international exposure, revenue growth, access to capital and dividend payment.

Over the past two months, Exxon Mobil shares have jumped 16% to $85, its highest level since 2008. Even still, the company has a price-to-earnings ratio of 13.7, which signals the stock may still have value as it is below the S&P 500's P/E ratio. Exxon shares also have a yield slightly north of 2%, which provides investors with extra income.

But not every professional investor is rushing into the energy space. Pavlik notes that several of these energy stocks have run higher and the opportunities are slim in numbers. "You have to be careful with the energy sector," he warns. "Specifically, figuring out which names will benefit and which names have moved so much that it wouldn't pay to be a buyer."

Instead, Pavlik highlights the financial sector, which he says should benefit from an increase in interest rates. Specifically, he's high on Bank of America (BAC) and Citigroup (C).

"The banks are able to lend out at a higher rate and borrow at a cheaper rate from the Federal Reserve, and thus seeing an increased spread," he says. However, Pavlik does acknowledge that bank stocks still have some risk and aren't out of the woods yet.

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