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It’s Time to Buy Underperforming Energy Stocks

Oil stocks and energy companies have underperformed handily so far in 2013. The Energy Select Sector SPDR ETF (XLE) is up about 16% vs. 18% for the broader S&P 500 since January, with top holding Exxon (XOM) up less than 10% and other major stocks like ConocoPhillips (COP) lagging behind, too.

But there has been a recent rally in crude oil prices that hasn’t been baked in completely to the sector – and that may imply a decent opportunity to rotate into energy stocks.

In June, OPEC predicted world oil demand will grow more quickly in the rest of 2013 – and more importantly, indicated the group would pump more oil than the output target to keep up. Clearly the oil cartel has no incentive to feed oversupply, so this is a pretty bullish sign.

Walter Kurtz over at the finance blog Sober Look pointed out recently, however, that oil stocks have been slow to respond – and that may be a good thing for investors.

“Equity markets are not convinced by the recent spike in oil prices and view it as temporary. The US government economists seem to agree. The recent projection of average cash prices for 2014 puts Brent forecast 9% below the current level while WTI is predicted to be almost 15% below where it currently trades.”

Yes, there are risks to oil and energy demand – particularly because of a big China slowdown in 2013. But right now, crude oil prices remain above $100 as the U.S. dollar softens a bit and disruptions at some Middle Eastern and African oil producers crimp demand.

And besides, we are going to have to see some sector rotation soon, right?

Related Reading:

  • Michael Kahn focuses on buying opportunities for 3 big oil stocks. (Barron’s)
  • Aaron Levitt highlights 5 high-yield energy stocks to buy now. (InvestorPlace.com)
  • Tyler Crowe likes these “golden triangle” energy plays. (The Motley Fool)

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here

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