There’s a concept in sector rotation called “worst to first.” It occurs when a sector that’s been a dud, particularly in one calendar year, reverses higher and takes a leadership role.
That’s certainly been true of the energy sector, 2020 laggard that’s turned into the top performer in 2021.
The Energy Select Sector SPDR ETF (NYSEARCA:XLE) advanced 30.69% year-to-date, a quick rebound from a 2020 decline of 32.51%. It’s not back to even yet, as it would take a gain of about 40% to regain its value at the end of 2019.
However, demand for oil is rising as the world’s industries ramp back up. Oil producers are managing the supply flow to avoid a glut. Meanwhile, energy technology companies are scaling their capabilities in the areas of clean and alternative energy sources.
Those factors add up to an overall rise in the sector.
Here’s a look at three energy-sector stocks with strong technicals.
Chart Industries (NYSE: GTLS): This Georgia-based company makes precision equipment used in the clean energy and industrial gas industries. Its gear is used for production, storage, transportation and other phases of energy delivery.
Chart has been busy inking deals lately. In February, it teamed up with Ballard Power Systems (NASDAQ: BLDP), to develop fuel-cell-based systems for the transportation industry.
It also acquired Cryogenic Gas Technologies in a $55 million cash deal. Cryo processes and distributes industrial gases, such as helium, argon and hydrogen.
Chart grew earnings by 51% in the fourth quarter, to $1.27 per share. That was a turnaround from two quarters in a row of declining earnings. Year-over-year revenue fell 3% to $312.4 million. Analysts expect full-year earnings of $3.72 per share, which would mark a 26% gain.
The stock is up 25.16% so far this year. It retreated from its March 15 high of $166.14, closing Friday at $147.43. It’s finding solid support above its 50-day moving average, rebounding off that line in heavy volume Friday. That’s a sign of institutional buying.
Sasol (NYSE: SSL): This South African integrated oil and gas company uses coal to produce petroleum products.
This month, the South African government issued an order telling the company to comply with emissions guidelines. The company said retrofitting its facilities was a non-starter, but said it could meet the government’s goals using other methods.
That news didn’t make a dent in the stock’s price, which rallied to a high of $15.67 just a few sessions later.
The stock slipped below its 10-day moving average the week ending March 19, but it’s holding 13.9% above its 50-day line. It closed Friday at $14.53.
While the chart looks strong, and earnings grew at triple-digit rates in the past two quarters, be aware that revenue growth has been declining for six quarters.
Mutual fund ownership increased in the most recent quarter, following a decline in the third quarter of 2020. Retail investors should always follow stocks with strengthening institutional support, because that’s what pushes prices higher.
Analysts are eyeing earnings per share of $1.24 for this year and $2.32 next year. Those increases would follow a loss of $8.63 per share in 2020.
Denbury (NYSE: DEN): The Plano, Texas company owns stakes in natural-gas production properties in the Gulf Coast region of the U.S., as well as in the Rocky Mountain region.
Denbury uses carbon dioxide to extract petroleum from areas with a history of exploration and production. This process reduces the carbon footprint of the oil it produces.
Though year-over-year revenue declined over the past eight quarters, the company turned its earnings growth around in the two most recent quarters.
This is a turnaround story. The company completed a financial restructuring and emerged from Chapter 11 bankruptcy protection in September 2020. It had previously been known as Denbury Resources, and formerly had the ticker DNR.
Year-to-date, the stock is up 61.93%, closing Friday at $41.60.
The character of trading became more volatile over the past month, with wider intraday price swings. The short interest stands at 22%, which is somewhat high, so the volatility may be explained by short squeezes.
The stock is consolidating below its March 3 high of $46.27. It’s currently forming a flawed double bottom pattern, so watch for institutional support to push the stock higher in heavy volume before making a purchase. That is a way to get in as institutions are showing confidence in the stock, rather than paring their positions.
