A couple of weeks ago, I offered reasons why I believed that after a decade of underperformance, 2020 could be the year that energy finally starts to play catch up with the broader market. They centered around an improved outlook for trade, or rather the evidence that suggests that even if the trade war drags on, the damage would be limited, and that reduced capex from oil companies and basic market forces would cause oil to rise, or at the very least not fall far. If you agree with those basic premises, the next question is what to buy to take advantage of that.
The first and most obvious play is to buy an energy ETF, such as the SPDR Sector Fund (XLE). That would give broad exposure as it has a total of 29 holdings, which spreads the risk around, and it has a good yield of over 6%. That makes it the choice for the basis of an energy portfolio, but there are a few individual stocks that I would also add for specific reasons.
The first would be the French integrated multinational, Total S.A. (TOT). Over the last few years it has been hesitation about growth outside the U.S. that has held energy stocks back as much as anything, and if the climate in that regard is going to improve this year, it makes sense to add a more internationally focused company such as Total to the mix.
TOT is currently trading at a reasonable forward P/E of around 10 and offers a dividend yield of just over five percent. The important thing from the perspective of constructing…