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Energy Sector Outlook – Best Energy Stocks

S&P Capital IQ equity analysts have a positive fundamental outlook on the influential Integrated Oil & Gas sub-industry, as well as most of the sector’s other smaller sub-industry groups. We believe that oil prices will decline slightly from current levels, averaging $91.96/bbl. in 2012 and $89.51 in 2013 as global economic growth slows.

The Capital IQ consensus sees Energy sector EPS rising 11.2% in 2013 versus an 11.9% gain estimated for the S&P 500. According to Capital IQ, the sector’s recent valuation of 12.3X consensus estimated 2012 EPS is below the 500’s P/E of 14.0X, as oil price volatility keeps investors from assigning the sector too high a valuation, in our view. The sector’s P/E-to-projected five-year EPS growth rate (PEG) ratio of 2.1X is above the broader market’s 1.2X. This sector’s marketweighted S&P STARS average of 4.5 (out of 5.0) is above the S&P 500’s average of 3.8.

The S&P GICS Energy Index sector has advanced right up to key trendline resistance off the April 2011 highs, and therefore, we believe there could be a pullback in the near term. In addition, prices have rallied into the beginning of a heavy layer of overhead supply that runs from 540 to 570, and we think this resistance may also keep a ceiling on prices in the short term.

Both WTI and Brent are either at or very near large areas of overhead supply so we think oil prices could pause or correct. In addition, the COT (Commitment of Traders) data is showing high levels of bullishness for crude oil from large speculators (“dumb money”) and high levels of bearishness from commercial hedgers (“smart money”). Relative strength versus the 500 has bounced nicely since June, but the RS line remains in a downtrend off the April 2011 top.

The stocks listed below are all Bullish and priced below their fair value.

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DK Delek US   Holdings Inc.
MPC Marathon Petroleum Corp
TSO Tesoro Corporation
CVX Chevron Corporation
STO Statoil ASA
HFC HollyFrontier   Corporation
VLO Valero Energy   Corporation
SXL Sunoco Logistics   Partners L.P.
LGCY Legacy Reserves Lp
CLMT Calumet Specialty   Products

Quality Stocks with High Yield Dividends

With so investors seeking high yield, it’s important for income investors to find dependable high yield dividend payers that they can count on.  With projections for a slower growth economy amid historically low  interest rates, it’s now more important than ever to find these solid dividend paying companies as there are fewer places to turn to for high yielding investments without taking on unwelcomed risk.  By screening for stocks with market beating yields, double digit growth rates, above median increasing cash flows and a strong balance sheet, this screen seeks to do just that by finding those companies that could turn into long-term core holdings for an income producing portfolio.  And with a Zacks Recommendation of a Buy or at least a Hold, these stocks have the potential to become total return winners as well.

Dividend paying stocks can help you build out a well diversified portfolio.  And if projections for a slower growth economy come true, the investment vehicles with ‘something extra’, i.e., solid and dependable dividends, will become even more highly sought after as investors seek out the best total returns while keeping a watchful eye on risk.

This list is filled with high yield stocks, many above 10%, that are ranked buy or hold by Zachs Investment Research.  Some of the popular names include: FUN that is being recommenmded by Jim Cramer; FSC & MAIN that are monthly dividend payers, CXS & PMT that offer mortgage REIT yields; and several energy stocks for continuing dividends.  The table belows displays the list of high yield dividend stocks.

high yield dividend stock with high quality ratings

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