Energy: An Overlooked Bull Market

Defensive stocks, such as health care and utilities, have led the market for most of 2014. But we’re starting to see a shift toward cyclical sectors that offer greater exposure to a strengthening economy. In my view, the most overlooked cyclical sector is energy, which has experienced a very strong start this year that’s been under the radar of many investors.

From early February to the end of April, the S&P Energy sector rose more than 15%, or almost double the gain of the S&P 500 Index (approximately 8%) over the same time period.1

Overall, I think most people understand the production side of the energy equation, especially with all of the attention that has been given to natural gas shale plays across the US. But I believe many strategists underestimate demand, especially in the emerging world, and are expecting a downside to global crude oil demand that I’m not sure will come to fruition.

There are several names I like in both the exploration and production (E&P) space and the service and supply space. As we await earnings announcements from several key energy companies over the coming days, I’ll highlight two names here: Anadarko Petroleum and Weatherford International.

Earlier this month, Anadarko (0.76% of Invesco Charter Fund as of March 31, 2014) agreed to a $5.15 billion settlement with the United States government over environmental legislation against Kerr-McGee, a company that Anadarko bought in 2006. The suit has weighed on Anadarko for some time — I believe it’s trading at 30% to 40% below its fair value. The resolution of this issue — along with its wonderful properties and other positives—make Anadarko an attractive holding, in my view.

Weatherford International (1.36% of Invesco Charter Fund as of March 31, 2014) is an oilfield service provider that I believe has great margin opportunities. It’s currently focused on divesting underperforming businesses while retaining higher-margin opportunities, particularly in the international space, within its core business.

1 Source: MSN Money,

Holdings are subject to change and are not buy/sell recommendations.

The S&P 500® Index is a market-capitalization weighted index considered representative of the US stock market.

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