The Energy Sector Is Just Getting Warmed Up – Here’s How To Play It

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After food, water and shelter, energy is probably the next most important necessity – certainly in the modern world.

Years ago, when Hurricane Wilma whacked South Florida where I live, we happened to be in New York for a wedding. The decision to come home was based primarily on when power would be restored.

Forget air conditioning – without electricity, stores wouldn’t be open, food would spoil in refrigerators and many gas pumps wouldn’t work.

Two weeks ago, we saw a serious reminder of how vital energy is to our lives, along the East Coast, people were waiting in long lines for gas after a pipeline went down as a result of hacking.

With the global economy reopening, demand for energy will likely be the strongest it’s been in years. Year to date, oil prices have risen 30%.

The average gas price in the U.S. is up slightly more at 33% and is now $3.11 per gallon. Gas averaged $2.38 per gallon at the end of 2020.

Inflation is picking up, and a wide variety of commodities are seeing large price increases. I expect energy prices to continue to rise for the next year. I wouldn’t be surprised at all if oil reaches $80 per barrel. It’s currently at $63.

The way I’m playing the inflation boom is with dividend stocks in sectors that will benefit from a rise in prices and interest rates. And one of those sectors is energy.

Of the big oil companies, my favorite is Chevron (NYSE: CVX). Revenue was up 7% in the first quarter. Earnings in 2021 are forecast to be the highest they’ve been in three years.

Chevron has raised its dividend every year since 1990.

As one of the oil majors, Chevron’s stock price is going to follow the price of oil. It is of the best-in-class producers, so as oil moves higher, Chevron should perform quite well. And you get a 5.2% yield while you’re waiting.

From a shorter-term trading perspective, I like ConocoPhillips (NYSE: COP).

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