Energy has been a downer this year, because the the price of oil collapsed in the spring with the world economy, but now energy stocks are positioned to rally. Seasonally the price of oil actually tends to bottom in the Fall and go up into the summer, but more importantly a critical commodity cycle turn seems to be in the works.
In a commodity bull market historically gold, silver, and other metals begin bull markets first and then soft commodities, such as agriculture go up next, and then energy begins to run last.
Of course, we have seen the metals and mining stocks explode and soar this year and we also have seen agriculture related stocks run. Now it looks like it is time for energy stocks to come alive. Check out the XLE ETF.
As you can see XLE was a lagging sector in March and into November against the S&P 50, but now is starting to perk up as money is going out of some of the big cap fad stocks like FB and into sectors that were lagging them.
XLE pays a 4% dividend and closed above $40.00 on Friday to clear a short-term consolidation. I actually bought a few energy stocks last week including XOM.
Notice that XOM has a chart very similar to XLE. That’s because Exxon makes up 22% of the entire the entire ETF while Chevron makes up 23% of it. So almost two stocks make up the entire ETF. Most ETF’s are like this – people think they are diversified in ETF’s, but they are not and they gotta pay management fees for holding them.
XOM also is paying an 8% dividend – which is twice the dividend of XLE.
That’s why I bought XOM instead of XLE!
Marathon Oil is likely to actually go up more than XLE or XOM from here simply because it is a lower priced stock, although it is paying a 2.03% dividend.
Markets are gapping down this morning, buy they are still poised for an end of the year rally and that is why buying is broadening into other sectors. All that said, I still expect my top stock pick for December will go up even more on a percentage basis, because it is a small cap stock. For more on it click here.