Energy is the worst-performing sector in the market in 2020, but there are 2 names in the space that Wall Street says are good bets now.
Energy has been the worst-performing sector in the S&P 500—by far—this year.
The XLE S&P 500 Energy Sector SPDR, which holds some of the biggest names in the space, is down nearly -51% so far this year, compared to the S&P 500’s 7.7% gain year-to-date.
“There’s no clear indication of a trend change anywhere close to happening with this particular index,” Craig Johnson, Piper Sandler senior technical research analyst, said regarding the XLE.
What’s more, the XLE’s three largest holdings—Chevron (NYSE: CVX), Exxon (NYSE: XOM), and Kinder Morgan (NYSE: KMI)—are all down more than -40% year-to-date and don’t appear to be reversing course anytime soon.
“As we sit here and correct back toward the March lows with some of these names, again, there’s no real hope” for the group, Johnson added.
And according to Oppenheimer’s Ari Wald, the sector is at its lowest point relative to the S&P 500 since 1931, a bearish sign that the sector isn’t likely to improve in the near term.
“The sector has really been troubled not only for the last year, but really for the last five years,” Wald, Oppenheimer’s head of technical analysis, said. “And there’s a few things going against this sector that we think that it’s too early to really make the call for a turn here.”
“The trend is still bearish whether you’re looking at it versus itself, versus the market,” Wald continued. “Point two, I think the broad-based internal weakness is a negative still weighing down on the group. Point three, I think you have the risk of a rollover in the price of oil. And point four, you’ve got the headwind of poor seasonal that the sector has to face as well. Typically, November to January, the sector has been the worst performing of the 10, now 11, S&P sectors since 1990.”
While things are looking grim for the sector as a whole, Wald said there are two stocks in the space that he’s eyeing now: First Solar (NASDAQ: FSLR) and NextEra Energy (NYSE: NEE).
Both companies are big names in the renewable energy space, and Wald isn’t the only one on Wall Street bullish on the two.
Roth Capital Partners analyst Philip Shen rates both stocks Buys. Shen said of First Solar, “Heading into third quarter results, we see the narrative around FSLR serving as a go-to company for customers seeking security of supply and reduced reliance on the Chinese supply chain gaining further momentum.”