When energy stocks bottomed in October, oil and gas integrated stocks staged a month-long rally. The sector is attracting buyers because a vaccine for Covid-19 will end the shut-down. The economy would recover from here.
Even if the virus is under control, the OPEC nations will boost output on the first signs of stable energy prices. Exxon (NYSE:XOM) and ConocoPhillips (NYSE:COP) both rose by around 8% in the week and 27% and 49.6%, respectively, in the month. A steady uptick in oil prices would lift the cash flows for these firms. Energy investors stand to gain over 100% in the upside, should these integrated firms reach their 52-week high.
Markets are merely guessing on the recovery in energy stocks. No one knows where energy prices will head to next. Still, a 50/50 chance of a strong gain is better than sitting on the sidelines and watching energy rise for a month. The patient investor should use the rally to lock in profits.
Sentiment may shift within days and the stocks will give up their near-term gains.
Both Exxon and ConocoPhillips are the strongest energy names for investors. Consider a new position in them after they re-test their 52-week lows.
