For the energy sector, the year 2020 turned out to be one of pain, intense volatility and unprecedented turmoil caused by the COVID-19 pandemic. While most businesses were hard hit by the coronavirus-induced lockdowns, the demand destruction and price plunge associated with energy was like no other. However, the commodity has recovered strongly from those depths to more than $50 a barrel.
Energy Market Rebounds From the Coronavirus Depths
The space finally has something to cheer about. In a stunning rebound from its record low on Apr 20, when the commodity settled at minus $37.63 a barrel, oil has been rallying for the past few months on continued vaccine-related developments that offer hope for an earlier-than-expected pickup in the commodity’s demand. Crude has been driven up further by Saudi Arabia’s surprise pledge to reduce oil output by 1 million barrels per day in February and March.
Most indicators show that energy could be on a slow but steady recovery path. Currently at around $52.50 per barrel, WTI oil prices recently reached multi-month highs, while the international benchmark (or the Brent) has finally broken above the psychological $55 threshold. It appears that the commodity is on the mend with the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — up nearly 45% over the past three months to be at the top of the S&P sector standings. The renewed enthusiasm can be gauged from the fact that the Zacks Oil/Energy sector has gained 43.7% in the past three months, handily outperforming the S&P 500 Index’s 12.9% appreciation. Meanwhile, several momentum stocks in the sector with a top Zacks Rank have provided generous returns in the past three months. These stocks also have more upside left in the near term.
Why the Momentum Is Likely to Continue
Apart from vaccine breakthroughs, much of the positive argument is simply a bet on stronger economic growth in America and the subsequent improvement in consumer spending. Following the epic 31.4% contraction in the April-June period, the U.S. GDP rebounded by a record 33.4% in the third quarter. Per the estimates from the Federal Reserve Bank of Atlanta, the U.S. economy is likely to grow at an impressive rate of 8.6% in the fourth quarter. The recently approved $900 billion stimulus package, plus new U.S. President Joe Biden’s $1.9 trillion coronavirus relief proposal should further bolster the economy. Amid this positive economic backdrop, end-user fuel usage is expected to improve.
To tap the oil market’s rally, one could use momentum as an investing strategy. Momentum investing looks to fetch profits from hot stocks that have shown an uptrend over the past few weeks or months. In other words, while investors will essentially be buying high, they hope to sell even higher. Want to Make the Most of Rising Oil Prices?
While all oil-focused stocks stand to benefit from rising commodity prices, the upward revision of earnings per share (EPS) estimate for 2021 is a crucial indicator in identifying potential winners in the space. This simply means the market is expecting the company to do good business this year. In particular, market participants are likely to be interested in those stocks that have witnessed positive EPS estimate revisions within the last 7 to 60 days.
Our Top Picks
We have narrowed down our search to five momentum stocks that have skyrocketed in the past three months. Further, these energy stocks witnessed robust earnings revisions in the last 7 to 60 days and have strong growth potential. Each of our picks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy) and has a
Momentum Score of A or B. You can see . the complete list of today’s Zacks #1 Rank stocks here The chart below shows the price performance of our five picks in the past three months. TOTAL SE ( TOT Quick Quote TOT - Free Report) : France-based TOTAL is among the top five publicly traded global integrated oil and gas companies based on production volumes, proved reserves and market capitalization. The company has one of the best production growth profiles among the oil super majors, characterized by an upstream portfolio with above industry-average exposure to the faster growing hydrocarbon producing regions of the world. The company has an expected earnings growth rate of 116% for the current year. Over 30 days, TOTAL has seen the Zacks Consensus Estimate for its 2021 earnings improve 10.4%. The oil biggie carries a Zacks Rank #1 and has a Momentum Score of A. Enerplus Corporation ( ERF Quick Quote ERF - Free Report) : Enerplus focuses on Bakken and Three Forks formations in the Williston Basin in North Dakota, together with interests in the Marcellus Basin in and waterflood projects in Canada. Banking on its low financial leverage and robust liquidity, this upstream energy firm is in a relatively better position to tackle the coronavirus-led industry woes. Enerplus has an expected earnings growth rate of 437.5% for the current year. Over 60 days, the company has seen the Zacks Consensus Estimate for its 2021 earnings surge 138.9%. Enerplus carries a Zacks Rank #1 and has a Momentum Score of B. Eni SpA ( E Quick Quote E - Free Report) : Eni, based in Rome, Italy, is among the leading integrated energy players in the world. Ramped-up production from Egypt, together with the start-up of key upstream projects in Algeria, Mexico, Egypt and Norway should aid the company to meet its compound annual production growth rate of 3.5% from 2019 through 2023. Eni has an expected earnings growth rate of 201.5% for the current year. Over 60 days, the company has seen the Zacks Consensus Estimate for its 2021 earnings improve 22.9%. Enerplus carries a Zacks Rank #2 and has a Momentum Score of A. Suncor Energy ( SU Quick Quote SU - Free Report) : Canada-based Suncor boasts an impressive supply chain network, owning significant oil sands and conventional production platforms, along with a strong downstream portfolio with a network of more than 1500 Petro-Canada retail and wholesale outlets. The company’s robust liquidity and modest near-term debt maturities are other the positives. Suncor has an expected earnings growth rate of 122.7% for the current year. Over 60 days, the company has seen the Zacks Consensus Estimate for its 2021 earnings surge 285.7%. The integrated player carries a Zacks Rank #2 and has a Momentum Score of B. Imperial Oil Limited ( IMO Quick Quote IMO - Free Report) : Imperial Oil’s integrated business portfolio of upstream and downstream assets provides it with a high level of stability, reducing the risk profile of the company. Strong execution and ramped-up activities in the Kearl, Cold Lake and Syncrude projects position the company for solid production growth and are expected to augment its revenues and earnings going forward. Imperial Oil has an expected earnings growth rate of 238.2% for the current year. Over 60 days, the company has seen the Zacks Consensus Estimate for its 2021 earnings surge 88%. The Canadian oil major carries a Zacks Rank #2 and has a Momentum Score of B. More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021. Click here for the 6 trades >>