As I wrote yesterday, energy stocks got absolutely bludgeoned last week.
The State Street Energy Select Sector SPDR ETF (XLE) plummeted 12%. That was the worst weekly performance of any major sector.
Meanwhile, the Democrats’ strong midterm results hit energy from two directions.
To start, investors are betting President Donald Trump will now face pressure to wind down the war. All else equal, that means cheaper crude oil.
Second, Democrats generally aren’t as friendly to traditional fossil fuels as Republicans are. They tend to put renewables higher on the priority list.
You know my view.
Energy stocks were marching higher long before the war started. And even after last week’s shellacking, energy is still by far the best-performing sector of 2026, up more than 40%.
And stiffer regulation – if it comes – isn’t necessarily bad news for the largest energy companies. Red tape tends to keep prices high and scare off would-be competitors. History is clear on that point.
Most importantly, the sector still rates exceptionally well on my Green Zone Power Ratings system.
Of course, “energy” covers a lot of ground. There are upstream, downstream and midstream operators… There are supermajors that do it all, and specialized companies that have carved out a narrow niche…
The point is, there’s an entire world that falls under the umbrella of energy.
So, today we’re going to dig in and see which corners of the energy space look most attractive.
Let’s get into it!
One thing jumps off the page right away: this sector leans “Bullish.”
Of the 21 stocks, 13 rate “Bullish,” meaning they score 60 or higher out of 100. (For those new to my system, “Bullish”-rated stocks outperform the S&P 500 Index by double on average over the following year.)
Another six stocks are rated as “Neutral,” meaning my system expects them to roughly keep pace with the broader market.
And only two stocks in the entire sector rate as “Bearish,” meaning my system expects them to significantly underperform the market.
There’s no ambiguity here.
My system is telling us to buy the dip in energy, and to do it aggressively. No ifs, ands or buts.
Where Does Energy Pick Up Points?
The Green Zone Power Ratings system is a composite score based on six primary factors: momentum, size, volatility, value, quality and growth, each of which comprises several sub-factors. (As we are looking at large-cap constituents of the S&P 500, I don’t consider size when doing the sector X-ray.)
So, where do energy stocks pick up the most points?
In short, pretty much everywhere.
As you can see, 18 out of the 21 stocks rate as “Bullish” on their growth and quality factors.
Yes, energy is gritty “old economy.” It’s yesterday’s news. It’s certainly not sexy or cutting edge.
Who cares. It’s growing like a weed and posting extremely healthy profit margins while doing so.
You know the old expression from Economics 101: There’s no such thing as a free lunch.
Almost always, you “pay” for growth stocks with higher valuations or higher volatility. Investors pay a premium for growth and accept a choppier stock price.
But that’s not the case in energy right now. In fact, 17 out of 21 rate as “Bullish” on volatility, and another 16 rate as “Bullish” on value.
The lowest-represented factor is momentum, but even here a solid majority of energy stocks rate as “Bullish.”
Frankly, there are no weak spots. This is a “Bullish” sector firing on all cylinders.
Getting MORE Bullish
You’ve heard me say that energy stocks have been “trending ‘Bullish’” all year. But what does that mean… and is it still true?
Let’s take a look.
I took the current Green Zone Power Rating of every stock in the sector and compared it with its rating three months ago.
Normally, I reserve the Green Zone ratings for my paying subscribers to Green Zone Fortunes, but I decided to make an exception today.
Take a look at the results:
This goes to show why I like to pick individual stocks rather than take a shotgun approach and buy the entire sector with an exchange-traded fund (ETF). Nine out of the 21 stocks got “more ‘Bullish’” over the past three months, while another five were roughly unchanged.
But there are definitely a few trending in the wrong direction. For example, oilfield service companies Baker Hughes (BKR) and Halliburton (HAL) were both solidly “Bullish” three months ago.
Meanwhile, Halliburton has been knocked down to “Neutral,” and Baker has been downgraded all the way to “Bearish.”
So, what’s the takeaway?
Be selective when you buy energy.
My system is telling us that some of the best opportunities are actually in some of the most boring and stable companies in the group, like supermajors ExxonMobil (XOM), ConocoPhillips (COP) and Chevron (CVX), all of which rate as “Strong Bullish” and all of which are trending more in that direction.
The refiners also still look great, and Marathon Petroleum (MPC) looks particularly strong.
Oilfield servicers look weaker right now, and midstream pipelines are a mixed bag.
So, stick to the supermajors and refiners for now. My system indicates these are the strongest plays in energy.
To good profits,
Adam O’Dell
Editor, What My System Says Today
P.S. Last week showed how quickly an election can upend whole sectors of the market. And with Washington, AI and the broader stock market all heading into a period of major change, I don’t expect the shake-ups to stop anytime soon.
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