The surge in unleaded gas prices — and the potential impact this might have on the nascent economic recovery — is another issue that could pressure the markets as summer driving season approaches. In contrast to the various segments of the market that might begin feeling the heat from rising prices at the pump — consumer stocks foremost among them — integrated energy producers are much more likely to outperform in this scenario.
The technical picture also makes a compelling case in favor of these three energy names, as Exxon, Chevron and Conoco are all trading within striking distance of new high ground. As of Thursday’s close, the three stocks were 6%, 1% and 4%, respectively, from their 52-week highs.
While the charts of XOM and COP remain vulnerable to the development of “double-top” formations, CVX has printed a very bullish pattern that indicates some meaningful upside potential if crude keeps climbing from here. In this way, the mega-caps can outperform if oil weakens (due to their low-beta nature) or if it continues to rise.
The Bottom Line
The energy mega-caps have come a long way in the past five months, but they continue to offer a compelling set of attributes. Be mindful of the potential for a short-term pullback, especially if CVX fails here and XOM and COP begin to look like they’re putting in a double top. But if this takes place, consider it an opportunity to own three of the energy sector’s most reliable stocks.
As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.