The energy sector is on track to post its best quarterly gains in nearly seven years as crude oil hits its highest level since November 2014.
The energy rally should continue, but stock selection is key, says one market watcher.
“We are getting to a point where I do think it’s going to continue to be stock specific and not just buying an entire group and just hoping that the whole group goes up,” Stacey Gilbert, market strategist at Susquehanna, on CNBC’s “Trading Nation” on Tuesday.
The XLE energy ETF has added nearly 5 percent in 2018 with some of the largest gains coming from the exploration and production (E&P) and refining and marketing subsectors.
“There are a couple of names that we would look at particularly on the oil services side. Halliburton and Schlumberger would be two of our favorites,” said Gilbert. “If we’re getting into the E&P space, two names that we would really like to keep an eye on here are Devon and Anadarko.”
Halliburton shares are down 5 percent for the year, Schlumberger has dropped 0.5 percent, Devon Energy is up 5 percent, and Anadarko Petroleum has surged nearly 40 percent.
While energy has advanced this year, gains are a fraction of the moves seen in crude oil. West Texas Intermediate crude has rallied 59 percent in the past 12 months, while the XLE ETF is up 18 percent.
“The problem with energy hasn’t been the commodity, by and large. It’s been the stocks themselves,” Rich Ross, head of technical analysis at Evercore, said on Tuesday’s “Trading Nation.” “The benchmark XLE, which tracks that S&P energy sector, you can see very well-defined resistance (that triple top) that it’s been almost impossible to get through over the past few years. On a break above that, you really like what you see in energy.”
One name Ross sees breaking out above and beyond the rest of the energy sector is Marathon Oil.
“You’ve actually broken out through that resistance here,” he said. “You’ve got that big base of support, formed this bullish cup-and-handle that’s a continuation pattern to the upside. On the breakout, you’ve consolidated and held that breakout. It tells me MRO goes higher.”
Marathon is on track to post its first monthly loss in four months. It is up 25 percent for the year.