3 Energy Stocks to Consider as the Sector Breaks Out

Key Points

• WTI Crude Oil Futures has surged from $70 to nearly $90 a barrel, marking a 23% year-to-date increase and promising gains for oil companies.

• The Energy Sector ETF (XLE) has outpaced the market, rising close to 17% year-to-date, presenting an opportunity amidst rising oil prices and geopolitical tensions.

• Both OXY and XOM have recently broken out, with OXY emphasizing a commitment to a carbon-free future and XOM boasting a significant market capitalization and dividend yield of 3.13%.

The energy market has been ablaze with activity this year, particularly in crude oil. Witnessing a remarkable ascent, the WTI crude oil futures, America's primary oil price benchmark, have soared from almost $70 a barrel at the onset of the year to nearly $90 a barrel in recent times, up 23% year-to-date.

Such a surge bodes well for oil companies, poised to generate substantial free cash flow throughout the year. Notably, the Energy Select Sector SPDR Fund NYSE: XLE, a renowned energy sector ETF, has significantly outpaced the broader market, boasting an impressive uptick of nearly 17% year-to-date. In recent weeks, this outperformance has intensified as the energy sector gains favor, propelled by various factors, including a retreat in high-growth tech stocks, escalating oil prices, and persisting geopolitical tensions, particularly in the Middle East, with no immediate resolution in sight. 

The energy sector's current vigor and momentum present an opportune moment to delve deeper into its dynamics. Capital appears to flow swiftly into this sector, so let’s explore three stocks worthy of consideration as the sector surges to unprecedented heights.

3 Energy Stocks to Consider

The Energy Sector ETF

The Energy Select Sector SPDR Fund NYSE: XLE seeks to provide investment results that generally correspond to the price and yield performance of the Energy Select Sector Index (the Index). The Index includes companies from the following industries: oil, gas, consumable fuels, and energy equipment and services.

The popular sector ETF is up close to 17% year-to-date and recently broke out of a significant, multi-year consolidation near $95. The move above multi-year resistance significantly shifted the sector's momentum and trajectory. 

The XLE's holdings have an aggregate rating of moderate buy based on 335 analyst ratings covering 99.7% of the portfolio. The consensus aggregate price target for the ETF is $104.46, forecasting a 6.5% upside.

Several heavyweights in the sector are among the ETF’s top five holdings, namely Exxon Mobil, Chevron, Schlumberger, EOG Resources, and ConocoPhillips.

Occidental Petroleum Co.

Occidental Petroleum NYSE: OXY is a global oil and gas company operating in the US, the Middle East, Africa, and Columbia. It focuses on exploration, production, and midstream operations. Notably, in 2021, it committed to a carbon-free future with ambitious emission reduction targets recognized by the Transition Pathway Initiative. Following its acquisition of Anadarko Petroleum in 2019, it became the US's sixth-largest oil and gas producer by market cap. Berkshire Hathaway emerged as its largest shareholder in 2022, holding over 26% of shares with regulatory approval for further acquisition.

Occidental shares have enjoyed a stellar year thus far, up close to 16% and outperforming the broader market. From a technical analysis perspective, the stock has been consolidating for multiple years, with $77 as the critical resistance. Should the stock continue to climb higher and approach this all-important level, a breakout might signal a significant, higher timeframe uptrend is underway. 

Exxon Mobil Co.

Exxon Mobil NYSE: XOM is the XLE ETF’s largest holding, weighing 21.11%, and is the world's second-largest oil refiner regarding its operations. The company boasts a whopping market capitalization of almost half a trillion, has a P/E of 13.65, and offers a dividend yield of 3.13%.

Like the overall sector, XOM recently broke above a major level of resistance, signaling robust momentum to the upside and overall strength in the sector. Now, trading above the previous resistance of $120, the stock is outperforming the market and its sector, up over 21% year-to-date. If the stock can successfully consolidate above previous resistance, that might be the final entry opportunity before it continues its rapid ascent. 

Based on eighteen analyst ratings, the stock has a consensus rating of moderate buy and price target, forecasting almost 7% upside. Most recently, on April 5, analysts at Truist Financial boosted its target for XOM from $140 to $146, forecasting an impressive 20% upside at the time of the report.