The S&P 500 declined 1.0% during the week ending 4/17/15, yet remained higher by 1.1% following Friday’s 20 point drop on Chinese regulatory actions, U.S. options expirations and a slight uptick in year-over-year core CPI. As a result of a pickup in inflationary concerns, in general, and a rise in oil prices, in particular, the S&P 1500 Energy sector was the sole price gainer among the S&P Composite 1500’s 10 sectors last week, rising 2.2% versus declines of between 0.4% for Materials to 2.0% for Industrials. In addition, less than 25% of the nearly 150 sub-industries in the S&P 1500 advanced in price with four of the top five price gainers coming from the energy and materials groups.
The natural question at this point is “Is it time to jump back into Energy?” Our one-word answer is “Selectively.” There are 101 energy sector stocks in the U.S. and Canada followed analytically by S&P Capital IQ equity analysts. Despite the significant sell-off during the past year, less than 1/3rd of these are worth buying, in our opinion. Specifically, 26 stocks are ranked 4-STARS (Buy), while only five carry 5-STARS, or Strong Buy, recommendations. What’s more, of the seven sub-industries within the S&P 1500 Energy Sector, Stewart Glickman, CFA, our Energy sector group head, has a negative outlook on Coal & Consumable Fuels, Oil & Gas Drilling, Oil & Gas Equipment & Services, and Oil & Gas Exploration & Production, while maintaining a neutral outlook on Integrated Oil & Gas and Oil & Gas Refining & Marketing groups. The only sub-industry in which he has a positive fundamental outlook is Oil & Gas Storage & Transportation. As a result, we recommend that investors remain selective when venturing back into the oil patch.
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