Energy might be the ‘story of the summer,’ one CIO says

Energy could be a hot trade this summer, according to Robert Schein, chief investment officer at Blanke Schein Wealth Management. A supply crunch perpetuated by geopolitical conflicts and shipping disruptions could send oil prices higher. That, in turn, would bode well for shares of energy stocks, Schein said. “I think energy could be the story of the summer,” Schein told CNBC Pro. “That could be the one wildcard, if you will.” Schein called energy stock valuations “really attractive,” noting multiples are largely in the low-teen range. He also said companies in the space have strong cash flows and balance sheets. His call comes amid the start of a rebound. The Energy Select Sector SPDR Fund (XLE) has added more than 12% in the first quarter of 2024, outperforming the S & P 500 ‘s gain of just over 10% in the same time period. It’s the latest move in a history of rocky trading. The fund lost over 4% in 2023, bucking the broader market’s uptrend. But the ETF rallied more than 57% in 2022, even as the S & P 500 tumbled more than 19%. XLE .SPX YTD mountain The XLE vs. the S & P 500 this year Schein said energy has begn to break out after being “left behind.” He dubbed the rotation to the sector as a “catch-up trade.” A rise in crude oil into the mid-$80 price range bodes well for stocks in the sector, Schein said. “If they’re making money at $70 a barrel, they’re printing money in the $80s and $90s,” he said. Oil prices can be further helped as the Port of Baltimore bridge collapse adds “fuel to the fire” of supply chain disruptions , he said. And that’s on top of ongoing geopolitical conflict already providing upward momentum. Playing the trend At this moment, most, if not all, investors are underweight on energy, he said. His team at the Hightower-associated firm is currently boosting its exposure to the sector. The California-based firm leader recommended investors first look at the Energy Select Sector SPDR Fund as a diversified way to add weight. For those interested in specific stocks, he pointed to Exxon Mobil , Chevron and ConocoPhillips . Those are also the top three large-cap names within the ETF, he noted. Chevron is the only one of the three that hasn’t clearly outperformed the broader market this year. All three stocks have buy ratings from the average analyst polled by LSEG, with price targets implying more upside ahead. Across the board, Schein expects these companies have done a lot of work around consolidation and restructuring their balance sheets. The stocks also have solid valuations, cash flow and dividends, he added. Schein also noted that these large-cap picks can be advantageous in tough times, as the companies typically support their stocks by doing buybacks. “They’re on the side of the shareholder,” he said. “And they don’t take their eye off the ball — off of execution.”