- Energy stocks offer shelter from the bear market ravaging equities due to stubbornly high oil prices.
- Conoco Phillips (COP): Its share price is pennies from a new record Friday afternoon.
- Devon Energy (DVN): Buyers jammed it higher after reporting robust earnings.
- Occidental Petroleum (OXY): Warren Buffett has upped his ownership stake to around 15%.
Energy is the last sector standing. All others have succumbed to the selling frenzy that’s left us with tattered trends and broken patterns. The reasoning for energy stocks’ gravity defiance is simple. Oil prices refuse to go down.
Sure, black gold has retreated following the super spike after Russian invaded Ukraine, but it never fully turned its trend lower. The probe below $100 was a feint, and we’ve since stabilized above it and the north side of all major moving averages.
And that bodes exceptionally well for energy stocks which have seen their profits and share prices balloon. We’re on the tail end of earnings season, and despite dozens of disappointing down gaps littering the landscape, none have ruined the otherwise pristine charts in the energy sector. While I wouldn’t rule out an eventual correction, it’s hard to see a prolonged downturn in this area as long as crude oil remains aloft.
Here are three quality candidates to consider for bullish trades.
Energy Stocks: Conoco Phillips (COP)
After this week’s better-than-expected earnings report, Conoco Phillips (NYSE:COP) is riding high. Prices have risen nearly $20 in a straight line since forming a pivot low two weeks ago. The recovery pulled prices above the 50-day and 20-day moving averages, and as of Friday afternoon, COP stock is within spitting distance of its old peak.
A breakout should bring new buyers to the yard. However, because we’re so extended heading into the resistance breach, I suggest a slightly more conservative strategy. That way, you still profit even if prices don’t see strong follow-through.
The Trade: Buy the June $105/$115 bull call spread for around $4.
You’re risking $4 to make $6 if COP climbs above $115. The expiration breakeven is only $109, so we only need the stock to rally $2 further from here to avoid losing money.
Devon Energy (DVN)
The two-year recovery in Devon Energy (NYSE:DVN) has been one for the history books. Sure, all energy stocks have recovered, but not many have scored as big as DVN. Since bottoming in March 2020 during the height of the pandemic at $4.44, prices have increased 14 fold to $69. And the company isn’t just sharing the goodness with shareholders through price appreciation. They’re also cutting fat checks.
Heading into the pandemic, Devon Energy paid quarterly dividends of 11 cents. The last two payouts grew to 84 cents and $1. And the upcoming June dividend will be $1.27! We’re talking about a meteoric increase here. While DVN stock has climbed an incredible amount, there’s still room to run. This was a $127 stock during the last oil boom in 2008.
The Trade: Buy the July $70/$80 bull call spread for $3.
You’re risking $3 to make $7 if the stock tops $80 by expiration.
Energy Stocks: Occidental Petroleum (OXY)
The bull market in energy stocks hasn’t gone unnoticed by Wall Street’s whales. This March, Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A, BRK.B) revealed it acquired 14.6% of Occidental Petroleum (NYSE:OXY). Subsequent share purchases have increased the stake to 15.2%. OXY stock is on pace for a banner year, already doubling in value. Volume ballooned in March following a bullish breakout pattern.
Prices have since consolidated but with this week’s bounce off the 50-day moving average, we’re now flirting with another breakout. The next earnings report arrives on Tuesday, so we could see an uptick in volatility surrounding the event. Even if prices dip following the announcement, I suspect any weakness will be short-lived.
The Trade: Sell the June $55/$50 bull put spread for $1.10.
Consider this a bet that OXY stays above $55 for the next month. The max gain is $1.10, and the max loss is $3.90.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.