5 Energy Stocks That Are Broker Favorites

One thing the oil market downturn has taught investors: nobody has much visibility into the future. So, when you think of something as a clear line of sight one quarter, it can soon be overshadowed by an unforeseen event.

We all know that 2015 was brutal for the oil industry with U.S. crude futures ending last year 30% below the 2014 level, which itself was 46% below the 2013 level.

This year promises more of the same.

The uncertainty in the energy markets have continued in 2016 with a lot of volatility. Oil prices recovered from a 12-year low of $26.21 a barrel in February to $50/barrel mark in early June, slipped again to under $40 only to rally toward $50 once more.

Energy Investing Is Tricky

Despite oil’s massive recovery since February, it’s still under $50 – about half the level of two years ago – and far below the breakeven price for many energy companies. Therefore, the commodity is not yet out of the woods and record high inventories amid robust production could still push it to the depths of multiyear lows.

Even the industry, which is cutting deeper, seems to think so. Companies around the world continue to slash jobs, defer/cancel projects worth billions of dollars and renegotiate contracts with suppliers to help protect their balance sheets.

To sum up, even as crude prices continue to make their way up, world oil supply remains in a glut and is likely to remain so through 2016. This might make any oil price strength short-lived.

Follow Expert Opinion  

The uncertainty of oil prices means that the future direction of the commodity’s movement is anybody's guess. However, fundamentals suggest that the odds are firmly stacked against a sustained rally and point toward sideways-to-flat crude price expectation. In fact, some industry observers feel that the door is open for one more retest of the recent multi-year lows.

On the contrary though, the commodity’s recovery to $50, predictably, has had a positive effect on stocks in the sector. In particular, savvy investors might view the price bump as the impetus the stocks need after freefalling for two years. Undoubtedly, still a long way to go, but improving crude prices may have already primed certain oil producers and linked entities for upward momentum.

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