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3 Funds To Buy As Energy Shares Rebound

By Kurt Osterberg · On April 6, 2018

Energy shares have lately fallen out of favor. In fact, the broader energy sector declined in the first quarter of 2018 with the Energy Select Sector SPDR (XLE) down 9.5% over the last three months. However, oil prices stayed above $60 a barrel for most of Q1. Fresh concerns about possible supply bottlenecks pushed up oil prices and actually pared some of the losses for the energy sector in the first quarter.

During the fourth quarter of 2017, energy stocks posted the highest earnings growth among all the 11 sectors that make up the S&P 500. And this trend is expected to continue during the first quarter earnings season slated to begin shortly. It seems that following an extended period of relative weakness, energy stocks are finally on their way to recovery.

It is therefore the right time to consider these three energy mutual funds that would benefit significantly from a rebound in the energy sector.

Energy Stocks to Bounce Back

During the first quarter of 2018, the XLE, which represents energy shares included on the S&P 500, declined 6.6%. These losses came on the back of a 3.8% decline for 2017. However, energy stocks rebounded in December and January even as oil prices moved toward the $70 per barrel mark.

Moreover, a recovery seems to be occurring at this point. During March, the Energy Select Sector SPDR (XLE) gained 1.6% even as the S&P 500 lost 2.7% after major tech stocks suffered heavy losses.

The recent increase in oil prices is leading to the sector’s resurgence. Oil prices increased by 7.5% to $64.94 per barrel during the first quarter and are likely to sustain their momentum. Incidentally, oil prices have increased for six of the last seven months. Furthermore, experts believe that the recent uptick in oil prices and strong earnings results can help the sector make a comeback.

For the first quarter, energy sector earnings are expected to be up 60.8% from the same period last year on 15.7% higher revenues. Excluding the energy sector, total S&P 500 earnings growth is projected to drop from 15.8% a year ago to 14.4%. (Read:Handicapping the Q1 Earnings Season)

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Kurt Osterberg

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