Energy stocks "look extremely attractive," says the portfolio manager

Energy stocks have been the clear winners in the S&P 500 this year (^GSPC). They continue to “look extremely attractive,” says one fund manager.

“Commodity Prices Remain High,” Ben Cook, portfolio manager of the Hennessy Transition Fund, Yahoo Finance said. “We anticipate growth in demand for crude oil this year, as well as growth in demand for natural gas globally this year and next.”

“High commodity prices are providing many of the companies in the U.S. upstream sector with tremendous cash flow, and that cash flow is allowing those companies to pay down debt and obviously stock buybacks,” Cook said.

“We look at the major sector categories in the S&P 500, and energy at this point and time screams attractive, not just on a valuation basis, but on a free cash flow yield basis,” he said. “Energy stocks to us, from an investor return perspective, look extremely attractive.”

Crude oil futures are in their third day of gains, hitting an 8-month low. Brent (BZ=F) and West Texas Intermediate (CL=F) rose more than 1% in Monday’s session.

Despite the rally, oil is down nearly 30% from June levels.

Price volatility stems from recession fears, China’s COVID lockdown, proposed Russian oil price caps and low liquidity in oil markets.

Still, Cook’s team believes crude oil prices could remain high and boost energy stocks further.

“We think there is good reason to believe that a further rise in commodity prices will support an outperformance, at least over the next 12-15 months,” he said.

The Energy Sector ETF (XLE) is up 48% year-to-date as oil stock prices have rallied.

Occidental Petroleum (OXY) is up 130% year-to-date. Warren Buffett recently invested another $16 billion in the Permian-based energy giant, increasing its share to 26.8%.

Chevron (CVX) and ExxonMobile (XOM) increased by 38% and 59% respectively since the beginning of the year.

Ines Ferre is a reporter for Yahoo Finance covering the US stock market. Follow her on Twitter at @ines_ferre.

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