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Energy Stocks Emerge as Leaders: Curran

Years of underperformance appear over for hard-hit oil and gas stocks.

Real Money's Kevin Curran is taking a look at one critical market sector as the good weather wanes over much of the country, with colder climes rolling in.

“After years of underperformance, energy stocks have emerged as market leaders in 2021,” Curran wrote recently on Real Money. “The move has been a welcome relief for long-suffering shareholders of stocks like Schlumberger  (SLB) - Get Schlumberger NV Report, Occidental Petroleum  (OXY) - Get Occidental Petroleum Corporation Report, and Pioneer Natural Resources  (PXD) - Get Pioneer Natural Resources Company Report, which were battered by the Covid-19-driven dip in demand for oil and gas.”

Exhibit “A” is Occidental , which is bouncing back from multiple woes in a big way.

“OXY suffered one of the starkest turns of fortune, as its ill-timed Anadarko acquisition and subsequent macroeconomic pressures caused by Covid led to its severe laggard position prior to 2021,” Curran said. “Over the past year, the stock has notched an over 100% gain, more than quadrupling the return of the S&P 500.”

The bird’s eye view on energy shows robust performance in the sector.

“The SPDR S&P Oil & Gas Exploration & Production ETF  (XOP) - Get SPDR S&P Oil & Gas Exploration & Production ETF Report has roared to an over 80% gain since the start of the year, while its cousin, the Energy Select Sector SPDR Fund  (XLE) - Get Energy Select Sector SPDR Fund Report is up nearly 50%,” Curran noted. “For natural gas, the trend is even more striking.”

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Can the rebound last? Perhaps so, and not for a reason one might think.

“In many ways, the present push upward for energy stocks is a product of their very unpopularity,” Curran said. “In recent years, ESG investing has become one of the greatest trends in investing. Inherent in this shift is an avoidance of many energy stocks that predicate their business on fossil fuels. As such, many institutional investors have worked to drop traditional energy names from portfolios and instead pivot to clean-energy alternatives.”

Commodities Continue on a Supercycle Trajectory … For Now

Right now, investors are still playing catch-up in the sector.

“They’re eagerly jumping back into a sector that was hated in years gone by,” Curran noted. “In order to contend with this catch-up trend, industry insiders point to exploration and production companies as the most promising targets for investors.”

Overall, as energy-specific political and structural dramas gradually play out, “there appears ample time left to play the rally in energy even if you might have missed the initial surge,” Curran said.

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