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Investors Finally Warming Up To Energy Stocks

Wayne Duggan

The energy sector has been one of the worst-performing market sectors in recent years, as a global oil supply has continued to surprise to the upside. The latest data from Bank of America suggests investors may no longer be overlooking energy stocks.

What To Know

It’s been a long time since energy stocks have outperformed the market, but the Energy Select Sector SPDR (NYSE: XLE) is up 17.5 percent year to date in 2019, slightly topping the 16.1-percent gain by the SPDR S&P 500 ETF Trust (NYSE: SPY).

Energy stocks got a boost last week when Chevron Corporation (NYSE: CVX) announced a massive $33-billion buyout of Anadarko Petroleum Corporation (NYSE: APC) at a steep premium to market price. The huge deal led some analysts to speculate that a wave of consolidation could be coming in the U.S. oil space.

Investors seem to be more optimistic as well. According to Bank of America Merrill Lynch analyst Jill Hall, the firm's clients have been net buyers of energy stocks for five consecutive weeks now.

Why It's Important

“Energy stocks also saw net buying by both institutional and hedge fund clients last week (the only sector in which hedge funds bought single stocks), and four week avg. flows into Energy stocks have now been positive since mid-March,” Hall wrote in a note this week.

She said the recent flow trends suggest investor sentiment toward energy stocks may finally be on the rise. Year-to-date, Bank of America clients have poured more than $1 billion into the energy sector.

Last week, the U.S. Energy Information Administration reported U.S. crude oil inventories of 7 million barrels. WTI crude oil prices are up 39 percent in 2019 to $63.72/bbl. The United States Oil Fund LP (NYSE: USO) is up 34.7 percent year to date.

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