Energy stocks ‘look extremely attractive,’ says portfolio manager

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

“Commodity prices remain buoyant,” Ben Cook, portfolio manager of Hennessy Transition Fund, told Yahoo Finance. “We foresee growth in crude oil demand this year, as well as growth on natural gas demand on a global basis this year and next.”

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

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

Crude futures are on their third day of gains, coming off an 8 month low. Brent (BZ=F) and West Texas Intermediate (CL=F) were each up more than 1% during Monday’s session.

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

The volatility in prices stems from recession fears, COVID lockdowns in China, proposed price caps on Russian oil, and low liquidity in the oil markets.

Still, Cook’s team believes crude prices could stay elevated — and boost energy stocks further.

“We think there’s a good reason to believe that further commodity price strength will support outperformance, at least for the next 12-15 months,” he said.

The energy sector ETF (XLE) is up 48% year-to-date as oil stock prices have ballooned.

Occidental Petroleum (OXY) is up 130% since the beginning of the year. Warren Buffett recently invested another $16 billion in the permian-based energy giant, boosting his stake to 26.8%.

Chevron (CVX) and ExxonMobile (XOM) are up 38% and 59% respectively year-to-date.

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