For Immediate Release
Chicago, IL – April 5, 2024 – Today, Zacks Investment Ideas feature highlights The Energy Select Sector SPDR Fund XLE, Murphy USA MUSA and Marathon Petroleum MPC.
Crude Oil Soars to 5-Month High: Energy Stocks to Watch
The first quarter of the year was a tale of two halves, with the energy sector leading the way from early February through the end of March. The theme has persisted as this week kicked off the start of Q2, with energy stocks continuing to shine bright.
This sector is leading the charge over the past 5 days as well as during the last month. The energy sector has advanced nearly 16% this year and is now lagging only communication services on a year-to-date basis. We also tend to see energy outperform during this period of the year from a seasonal perspective, so this doesn’t really come as much of a surprise.
Energy stocks have quietly gained traction, widely outperforming the major indices in 2024 amid a jump in oil prices. Crude oil is breaking out to a 5-month high.
The stock market is forward-looking, and perhaps there is more to the story. Will inflation rear its ugly ahead again and show a jolt back upwards? Not many are expecting this, but as investors it’s something we need to be prepared for even if the probability is minor.
In the real world, low-probability events can and do happen. The market has a way of telling us what to expect as forces shift from one pocket to the other. And right now, they’re undoubtedly leaning toward energy stocks.
Still, the data clearly shows that inflation measures continue to trend in the right direction. Late last week we received February’s personal consumption expenditures (PCE) index figures. Headline PCE showed a 0.3% increase on the month versus estimates of 0.4%, as well as a 2.5% gain on an annual basis that matched projections.
Core PCE – the Fed’s preferred inflation gauge – increased 2.8% in February, also matching estimates. The trend in inflation is obviously down, so the move in energy stocks could prove to be temporary as other sectors take a much-deserved break. Time will tell.
Energy ETF Surges to All-Time High
The Energy Select Sector SPDR Fund has broken out to a new record high. The XLE ETF seeks to provide an effective representation of the energy sector of the S&P 500 Index. Constituents within XLE are companies engaged in oil, gas, and consumable fuel industries, as well as energy equipment and related services.
The Zacks Oil and Gas – Refining and Marketing industry contains many of these stocks and currently ranks in the top 38% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform over the next 3 to 6 months. This group has soared more than 16% over the past month, handily outpacing the general market.
Quantitative research studies suggest about half of a stock’s future price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. By focusing on stocks within the top Zacks Ranked Industries, we can provide a constant tailwind to our investing success.
Stocks to Watch
Several energy companies are currently breaking out to either 52-week or new all-time highs – a big sign of strength. Murphy USA, a Zacks Rank #1 (Strong Buy), is one such stock. An independent retailer of motor fuel and convenience merchandise across the country, Murphy USA has witnessed its share price climb more than 65% over the past year:
MUSA stock is ranked favorably by our Zacks Style Scores, with best-in-class ratings in our Momentum category as well as our overall VGM score. This indicates that the stock is likely to continue higher based on favorable value, growth, and momentum characteristics.
Analysts covering MUSA are in agreement in terms of earnings estimate revisions; full-year estimates have been raised by 6.6% in the past 60 days. The 2024 Zacks Consensus EPS estimate sits at $26.32/share, representing a 3.3% improvement from last year.
Marathon Petroleum, a leading refiner, transporter, and marketer of petroleum products, is another company to keep an eye on. MPC stock has advanced more than 75% over the past year.
Currently a Zacks Rank #3 (Hold), Marathon Petroleum has established an enviable history of exceeding earnings estimates. The company delivered a trailing four-quarter average earnings surprise of 24.04%. Looking into upcoming results from the first quarter, analysts have raised earnings estimates by 64.86% in the past 60 days. The Q1 Zacks Consensus Estimate now stands at $3.05/share.
The Zacks Earnings ESP (Expected Surprise Prediction) seeks to find companies that have recently seen positive earnings estimate revision activity. The idea is that this recent information can serve as a more accurate predictor of the future, which can give investors a leg up during earnings season.
The technique has proven to be quite useful in finding positive surprises. In fact, when combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks delivered a positive surprise 70% of the time according to our 10-year back test.
MPC is a Zacks Rank #3 (Hold) and boasts a +33.14% Earnings ESP. Another beat may be in the cards when the company reports its Q1 results later this month.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Murphy USA Inc. (MUSA) : Free Stock Analysis Report
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
Energy Select Sector SPDR ETF (XLE): ETF Research Reports
