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Managing Editor’s Note: Today, we’re hearing from our contributing editor Mike Burnick in his weekly feature.
Mike has over 30 years in the investment and financial services industry – from operating as a stockbroker, trader, and research analyst, to running a mutual fund as a registered investment advisor and portfolio manager, to being Research Director for the Sovereign Society, specializing in global ETF and options investing.
And he’s been senior analyst at TradeSmith for three years, running Constant Cash Flow, Infinite Income Loop, and Inside TradeSmith.
Here’s Mike…
What You Should Be Doing About Energy Stocks…
BY MIKE BURNICK, CONTRIBUTING EDITOR, MARKET MINUTE
Crude oil just fell over 25% in three weeks.
So, you might think energy stocks are toast. But don’t count them out just yet.
Sure, the S&P 500 Energy Sector ETF (XLE) also dropped about 10% in recent weeks, but that was after posting spectacular gains earlier this year.
Energy stocks are still holding on to most of those gains.
You may be surprised that energy stocks are still up 19.5% year-to-date, even after the recent drop. This outperforms the tech sector, which is up 14.5%.
You’ll probably be even more surprised to hear that earnings growth for energy stocks at +51.2% is likewise beating tech sector profit growth (40.4%) by a wide margin.
That tells me energy stocks have the staying power to keep outperforming, despite lower oil prices.
And your best bet when it comes to energy is to think small-cap over large.
As you can see above, small-cap energy stocks are outperforming XLE by a comfortable margin over the past year.
And both are far ahead of the S&P 500 gains year-to-date.
It’s not Exxon and Chevron that are leading the sector, it’s the faster-growing small-cap energy stocks.
With that in mind, here’s how I use our TradeSmith Screener tool to scan the market for healthy, small-cap energy stocks.
TradeSmith members have easy access to our Screener by navigating to the Invest tab, then simply clicking on Screener as shown above.
I clicked on +Add Filters to start narrowing my search by adding three simple screener filters.
- I added a filter for Health (Short-term) found under TradeSmith Proprietary Metrics, and I clicked on Green and Yellow Health as shown.
- I click on Markets & Classification and add filters for Markets and for Sectors.
- For Markets, I selected S&P 600 (SML), and for Sectors I selected Energy.
Now I’m set to search our database for healthy, small-cap energy stocks with this simple Screener.
In my column last week, I briefed you about our Health Indicator system that features three color-coded health states: Green, Yellow, and Red.
Recall that yellow is still considered healthy. In fact, stocks in this zone have pulled back from recent green zone highs. These can be excellent buy-the-dip stocks.
When I ran this Screener earlier this week, I got 20 results. The top five stocks are shown above due to space limitations.
All five stocks are in the long-term green category. Two stocks are short-term health yellow, which means they’ve recently pulled back, and the other three are green.
Bottom line: This simple TradeSmith Screener is a great way to zero in on faster-growing small-cap energy stocks that may be well positioned to keep outperforming the market.
Good investing,
Mike Burnick
Contributing Editor, Market Minute