Energy stocks led the way during last year’s bear market, surging in conjunction with Russia’s invasion of Ukraine that upended global energy markets. Many energy companies have since underperformed this year, dragged lower by declining earnings as global markets stabilized. Still, West Texas Intermediate (WTI) crude oil futures are currently testing $90/barrel on a tighter supply outlook. Many analysts expect a move higher in the coming months.
It comes as no surprise then that the energy sector has come back into focus in recent months, earning the top spot as the best performer over the last 1-month and 3-month periods. The Organization of the Petroleum Exporting Countries (OPEC) recently reiterated its forecasts for robust growth in global oil demand this year and next, citing the resilience of energy demand in major economies.
The optimism has sent crude oil prices to a 10-month high, bolstering a host of energy stocks as well. Last week, Saudi Arabia and Russia extended voluntary supply cuts in an effort to keep supplies tight. OPEC, Russia, and allied producers are known as OPEC+.
Energy Industry to Watch
The Zacks Oil and Gas – Field Services industry group has come on strong, advancing nearly 31% over the past 3 months. This industry group is currently ranked in the top 23% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next three to six months.
Image Source: Zacks Investment Research
Quantitative research studies suggest that approximately half of a stock’s future price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.
By focusing on top stocks within the best-performing industries, we can dramatically improve our odds of success. Let’s take a deeper dive into two leading stocks within this top industry.
Established Players Hit 52-Week Highs
Oil-related stocks tend to have a high correlation with the price of crude oil. Higher oil prices are good news for oil company margins and profits. As crude prices continue to move higher, the opportunity for investors to profit expands.
Baker Hughes (
BKR Quick Quote BKR - Free Report) is outperforming the market this year. BKR stock is ranked favorably by our Zacks Style Scores, with top marks in our Growth and Momentum categories. Baker Hughes has surpassed earnings estimates in three of the last of four quarters, with an average earnings beat of 6.56%. BKR shares have risen nearly 50% in the past year and are currently hovering near a 52-week high. Image Source: StockCharts
Likewise, Halliburton (
HAL Quick Quote HAL - Free Report) shares have begun to show signs of life. Halliburton has established a long track record of earnings beats, and boasts a trailing four-quarter average earnings surprise of 6.18%. HAL stock is up more than 42% in the past year and hit a 52-week closing high just yesterday. Image Source: StockCharts
Halliburton stock remains relatively undervalued at just a 13.93 forward P/E, and is also ranked favorably by our Zacks Style Scores with a top mark in our Growth category. Both BKR and HAL stocks are part of the leading industry group we explored earlier and are set to build on their recent momentum.
Make sure to keep an eye on these energy companies as oil prices rebound.