Energy has been a hot corner of the market, and it may not be too late to buy in

Energy is one of just three sectors in the green over the past month as oil clings to its recent rally, and some see the upside continuing.

"Over the last five years, the narrative on energy stocks has just been ugly," Mark Tepper, president of Strategic Wealth Partners, told CNBC's "Trading Nation" on Thursday.

"But things actually finally look different," he continued. "There's strong global growth, there's good supply-demand fundamentals, and that's really kept a solid floor under oil prices, which right now are right around three-year highs."

Crude oil recaptured a level above $60 in late December for the first time since 2015. Oil began to claw its way back from lows through 2016 as global oil producers, including the Organization of Petroleum Exporting Countries, made efforts to address a supply-demand imbalance.

Yet, even as crude prices have surged and held above $60, the energy sector is still sluggish.

"The most surprising part of this rally in oil prices is that energy stocks haven't done anything," said Tepper. "They've lagged, which means there's significant upside potential."

The price of crude oil has rallied nearly 23 percent over the last 12 months. Over that same period, the XLE Energy SPDR ETF has dropped 3 percent.

"With pricing power being the strongest that we've seen it in really this decade, and margins are continuing to expand, we really, really like the energy sector. Eventually stock prices are going to have to catch up," said Tepper.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, also sees strong fundamentals underpinning a potential rally in the sector.

"The macro background is very positive. Every single region in the world is growing, and I think that's the main reason why energy is doing well, because demand is really firm," Schlossberg told "Trading Nation" on Thursday.

Global demand for oil is expected to rise by 1.5 million barrels per day in 2018, according to the International Energy Agency. The oil watchdog increased its full-year estimates in March.

"At this point, with very strong yields and the fact they were so cheap for so long, the market is really just plowing on a mean reversion basis," said Schlossberg. "It's still a very good bet. It's basically a story of buy for the yield and stay for the possible capital gains."

Mean reversion refers to the trading theory that prices and returns tend to move back to their historical average. The XLE ETF plunged below its 200-day moving average in early February during the broader market sell-offs. The ETF has straddled that support level through March and early April.

The energy sector was lower on Friday along with the rest of the market.

Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more