NEW YORK (TheStreet) -- In the last 20 years, three stock sectors have led to consistent profits: health care, technology and energy. But energy has lagged the other two for the last two years and will need to stage quite a comeback rally to regain its spot in the top three of profitable sectors. I believe that the markets are setting up for precisely that to happen in 2016.
Oil has experienced a true bust in prices, which began almost exactly one year ago today. In the last year, oil stocks have been the biggest sector underperformer of the major averages as oil prices have swooned from over $100 a barrel to just under $40.
But we should be used to the cyclical nature of oil prices -- we have seen other oil busts in the past and they have all been followed by even more impressive rallies. As much as we might hope to wean ourselves away from fossil fuels, global demand for oil and gas still continues to grow at a steady pace.
Ultimately, that means that the markets will have to turn back to oil stocks that have been beaten down in the past two years when oil markets inevitably recover. Don't believe any analyst or talking head who tells you that the price of oil, now that it is under $50 a barrel, will remain low far into the future. It cannot. The question for the past year hasn't been whether oil and oil stocks will recover, but when that recovery will start.
There are some tough times still ahead, but I believe that 2016 will prove to be one of the best years for oil stocks. Energy is poised to be the leading stock sector, outdoing every other in 2016 and 2017. And now is the time to begin accumulating energy stocks for their inevitable recovery.
But not all energy stocks are created equally. There are still several companies that won't survive the continuing bust cycle and several that will not see the next boom cycle as strong producers. You can certainly buy the majors. I particularly like Exxon Mobil (XOM) and Total (TOT).
Some of the oil services companies have reached better value levels, and I prefer Schlumberger (SLB). But stay away from marginal oil companies that are very cheap and look like good speculative bets. The chances are that many of these won't survive. In that bunch, I'm including Halcon Resources (HK), Sandridge Resources (SD), Goodrich Petroleum (GDP) and Exco Resources (XCO).