Energy stocks have room to go higher, even after a wild run this year, says one strategist.
"They're still cheap if you look at it on most metrics,” Tortoise portfolio manager Rob Thummel told Yahoo Finance Live this week.
“The market is really rewarding companies that have positive earnings and free cash flow. That’s what this sector has,” said Thummel," I still think there’s room for it to continue, even if oil prices stay the same, or even if they fall a little bit."
Thummel says the biggest driver for energy stocks going forward is the yield they offer investors.
The S&P 500 Energy ETF (XLE) is up 53% year to date, by far the best performer among the 11 sectors.
However energy stocks have been selling off recently amid a slide in crude oil prices. Brent futures hovered around $80 per barrel on Tuesday and WTI fell below $75.
“Right now China is driving oil prices. What we’ve seen is obviously the concern of the China re-opening being delayed,” said Thummel. “When that growth returns you’re going to have oil prices probably go higher.”
He also notes crude inventories worldwide are low.
“You’re going to see more and more demand going forward for oil, and there is just not a lot of extra supply coming online in the next couple of years,” he added.
Ines is a senior markets reporter covering stocks. Follow her on Twitter at @ines_ferre