It’s been a strong 2022 for energy stocks. The S&P 500’s XLE (XLE) is up more than 40% since the beginning of January — by far outperforming the broader market.
In June and July, overbought energy stocks pulled back sharply amid concerns of a recession and tumbling oil prices. Since then, the sector has regained a large portion of those losses.
In continuation of our series, "What to do in a bear market," Yahoo Finance asked the experts if energy is still the place to be given the recent pull back in oil prices.
Energy stocks were the place to hide out for most of the first half of the year. Should investors still be holding onto energy stocks?
“We still think we are in the early stages of a longer-term period where crude oil and natural gas prices remain fairly high by historical standards. In practical terms, this means crude oil likely in a range of $80/b - $100/b (WTI) (CL=F), and at those price points, many energy firms should have strong earnings power and throw off a lot of free cash flow,” energy analyst Stewart Glickman of CFRA Research told Yahoo Finance.
“Energy investors have to be willing to tolerate the volatility that comes with the space. The biggest risk to energy names is a recession that hurts demand and causes prices to decline even further – for a short amount of time. Recessions do not last forever,” he added.
Energy companies' top and bottom lines surged last quarter. Their strong quarterly prints are expected to continue into the rest of the year.
“The strongest sales and earnings announcements will be in the energy sector for Q3 & Q4 due to favorable year-over-year comparisons,” Louis Navellier, of Navellier Calculated Investments, tells Yahoo Finance.
“Many energy stocks, like DVN (DVN), have high dividend yields, plus low price-to-earnings (PE) ratios, so they are also at great valuations,” he added.
What are some of the names or types of energy stocks investors should be holding?
Yahoo Finance also reached out to JC Parets, president and founder of Allstarcharts.com. Parets gave us his energy playbook:
“We like buying energy and energy stocks, particularly if crude oil is above $88/barrel,” he said.
"I'm especially impressed with how well energy stocks have held up despite a 30%+ correction in Crude Oil," noted the technical analysis expert.
Should investors buy the dip when it comes to energy stocks?
“Relative to projected 2023 results, energy firms are trading at healthy discounts (about 30% below on forward EBITDA for E&Ps, and about 10% below for midstream), so we think the risk-reward balance is still attractive,” said Glickman of CFRA Research, who notes his team's approach is driven by a 12 month time horizon.
Meanwhile Navellier says, “Investors just missed the dip, since energy stocks are exploding to the upside today and many energy stocks are up 20% to 30% in the past few weeks."
Ines is a markets reporter covering equities. Follow her on Twitter at @ines_ferre