The energy sector was the best performing sector in the S&P 500 last year, and through the first six months of 2022, that remained the case, and by a significant margin.
Now, with gas prices falling and growth stocks rebounding powerfully from their July lows, some investors are worried about their energy holdings, while others may be thinking they’ve missed the good times altogether. No theory can be accurate. In fact, some analysts remain bullish on oil and there are data points to support that notion.
“U.S. crude oil exports reached 5 million barrels per day, the highest level on record, EIA data showed, as WTI has traded at a steep discount to Brent, which makes US crude purchases more attractive to foreign buyers,” he reports. Reuters. “In a sign of strong demand, gasoline stocks drew 4.6 million barrels, much higher than the expected draw of 1.1 million barrels.”
With an energy sector rally a legitimate possibility, investors may want to consider the following exchange-traded funds.
Alerian MLP ETF (AMLP)
los Alerian MLP ETF (AMLP) is the largest ETF dedicated to master limited partnerships (MLPs), which are the income-generating segment of the energy patch. AMLP lives up to that reputation with an eye-popping dividend yield of 9.30%.
Another benefit of MLPs is that, due to the turnpike nature of their business model, stocks are often not as highly correlated to oil prices as stocks of traditional oil producers and the like are. AMLP is showing that benefit as it is down just 7.68% from its 52-week high. On the revenue side, the good news is that many intermediate energy names are maintaining or increasing, not cutting, payments.
“Intermediate companies continued to build on their history of positive dividend trends with their latest payouts,” according to Alerian research. “For the fourth consecutive quarter, there were no dividend cuts in Alerian’s suite of energy infrastructure indices. Most names kept their payouts sequential as increases tend to be skewed towards Q4 and Q1 payouts, but there were still notable examples of concentrated growth among MLPs.”
Fondo First Trust Energy AlphaDEX® (FXN)
los Fondo First Trust Energy AlphaDEX® (FXN) it is not a run-of-the-mill cap-weighted energy ETF. Rather, the fund tracks the StrataQuant® Energy Index, which employs a variety of growth and value metrics to construct the ETF’s 40-stock lineup.
The result is an ETF that is radically different from cap-weighted rivals, as highlighted by the fact that none of its components exceed a weight of 4.85% and the average market value of holdings is $24.64 billion. Dollars. Both numbers are low relative to traditional rivals in this category. Overall, FXN is a solid energy ETF for investors looking to buy into the pullback idea.
“While volatility may continue in the short term, we believe sell-offs may provide more attractive entry points for investors, particularly those who remain underweight energy stocks,” according to First Trust research. “While we recognize that a deep global recession could negatively affect fossil fuel demand in the short term, we believe that longer-term supply-demand dynamics, as well as geopolitical influences, will likely support relatively high oil prices. and natural gas, which may continue to drive strong earnings for energy companies. Additionally, despite a relatively strong performance since the fall of 2020, valuations for energy stocks remain historically low.”
VanEck Oil Refiners ETF (CRAK)
los VanEck Oil Refiners ETF (CRAK) It is the only ETF dedicated to refining stocks, which can make and benefit from various supply and demand dynamics in the oil space. CRAK doesn’t stand out compared to other energy ETFs, but recent headlines from the second quarter earnings season confirm that fundamentals are strong among CRAK’s constituents.
“Valero Energy (NYSE: VLO), one of the largest independent refiners in the US, said its second-quarter net income reached $4.7 billion, nearly 29 times a year earlier and well above Wall Street’s expectations,” reports Jinjoo Lee for the Wall Street Journal. “The quarterly profit, a record, was not far from the full-year profit record it set in 2006. PBF, a smaller refiner, made a net profit of $1.2 billion, 24% more than the figure that had been made by the smaller refiners. analysts surveyed by Visible Alpha. written in pencil.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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