Oil and gas stocks may be running out of steam.
That means a big shift in market leadership could be imminent. Over the past year, the Energy Select Sector SPDR ETF
has beaten all other industries and sectors, gaining 72%, in contrast to a 1.3% loss for the S&P 500 Index
This ETF’s closest competitor, among the 10 major Select Sector SPDR ETFs, is the Utilities SPDR
with a gain of 16.8%.
Not surprisingly, given this industry’s impressive relative strength, momentum followers are quite bullish on oil and gas stocks. And it certainly seems as though the industry has the wind in its sails. Goldman Sachs earlier this week said oil’s price could jump to $140 a barrel this summer; Jeremy Weir of Trafigura, one of the world’s largest commodity traders, said oil’s price is likely to reach $150 or more in coming months.
The editors of the top-performing newsletters that my firm monitors don’t subscribe to these oil-price-spike scenarios. In fact, there is not even one oil or gas stock in the list — reproduced at the end of this column — of stocks currently most recommended by the top-performing investment newsletters. Assuming these top performers will be more right than wrong, other industries will soon replace energy at the top of the relative strength rankings.
There’s no one reason that the editors of these newsletters give for predicting this imminent change in the industry/sector rankings. But I note that, almost by definition, the top of a bull market comes when the news is most positive — like now. That’s when the consensus view about a stock or industry will be at a bullish extreme, which in turn is when contrarians start to get worried.
Which industries are the top performers betting on instead of oil and gas? The list of individual stocks at the end of this column is only marginally helpful in answering that question, as a wide range of industries is represented by the stocks.
So I constructed a different ranking, focusing on the industries most represented among all recommended stocks. Employing three-digit Standard Industrial Classification (SIC) codes, here are the 10 industries that received the most buy recommendations.
They are listed in descending order of how many newsletter buy recommendations currently exist for stocks in that industry:
Electronic components and accessories
Computer and data-processing services
Real estate investment trusts
Computer and office equipment
Cable and other pay-TV services
As you can see, the oil and gas industry doesn’t make the top-10 list.
Because the top-performing newsletters that my firm monitors tend to pursue contrarian strategies, it perhaps isn’t as surprising as it otherwise would seem.
But for the industry to not even get an honorable mention is surprising. The next several months are shaping up to be quite a test of their predictive prowess — and of contrarian analysis generally.
As for individual stocks, here is the list of those currently recommended for purchase by at least three of the top-performing newsletters that my firm monitors.
Number of newsletters recommending
CARDINAL HEALTH INC.
CVS HEALTH CORP.
INTERNATIONAL BUSINESS MACHINES
JPMORGAN CHASE & CO.
BERKSHIRE HATHAWAY INC.
DISNEY WALT CO.
INTERNATIONAL PAPER CO.
LEGGETT & PLATT INC.
MERCK & CO INC.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at firstname.lastname@example.org.