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Energy rout rolls on, but a trader says one stock could have bottomed out

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Energy rout rolls on, but trader says one stock may have bottomed out

Energy stocks are lagging the market again as the coronavirus outbreak spreads.

The XLE energy ETF tumbled more than 1% on Friday, racking up a more than 4% decline for the week.

Todd Gordon, managing director of Ascent Wealth Partners, warns to stay away from the group – he sees no end in sight to the sell-off.

"Energy, in general, has been a no touch for us," Gordon said Thursday on CNBC's "Trading Nation." "I want to focus in here on energy exploration … the XOP ETF has been clearly in a downtrend. We're holding on for dear life below the $20 support, I think it gives way here."

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The XOP oil & gas exploration ETF is down 14% this month and last traded at $20.30.

There is one energy stock that Gordon would consider as having upside potential, though.

"One name that I do like in the energy space — it's not a member of the XOP, it's an infrastructure play — is Kinder Morgan," he said. "Earnings were a little light, but [investors] liked what they said going forward in terms of investment — and the stock is responding well, they also boosted the dividend. We are trying to break up through the $20 region, we've got good volume."

Gordon notes that he's looking for a move up to $25 for Kinder Morgan. That's a 16% rise from its current $21.56.

John Petrides, portfolio manager at Tocqueville Asset Management, takes the opposite side on the energy space – he said there could still be opportunity here after its severe downturn.

Energy is "one sector that's just gotten beaten up over the past couple of years, so there's value to be had in a market where, I think, valuations are in general are stretched," Petrides said during the same segment.

The energy sector has one of the cheapest valuations in the S&P 500, trading at 16.9 times forward earnings. The S&P 500 trades with a 19 times forward multiple.

"There's value to be had in the energy space, I think investors do need to be selective; focus on those with high-quality balance sheets generating a cash flow that can operate in a lower-for-longer oil environment and I think in the long run you're going to be rewarded," Petrides added.

However, Gordon notes that these stocks are cheap for a reason.

"Looking at the XLE since Jan of 2018, it underperformed the S&P by 37%. If my portfolio manager missed out on two-year growth of 37% in my portfolio because I was holding a sector that had a compelling valuation and no technical support in sight, I would take a big step back," Gordon said in emailed notes.

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