Since dipping to $42 in June, crude oil prices have been steadily on the rise, hitting $58 a barrel last month – a two-year high. That’s unwelcome news if you drive just about any car other than a Tesla (TSLA). But it’s great news for oil ETFs.
As we so often say here at Cabot Wealth Network, we’re stock pickers. We prefer to recommend individual stocks—growth stocks, value stocks, small cap stocks, etc. However, there are occasions when we recommend exchange-traded funds (ETFs). One of those occasions is when there’s a red-hot sector and you want to take full advantage of its momentum. Rather than pick one or two stocks, it can make sense to buy an ETF that tracks a whole basket of stocks in that sector.
That’s why oil ETFs are starting to look appealing again. Oil prices are now trading comfortably above their 50-day moving average ($54). Unless they drop back below that average, oil is a good momentum play; and the most efficient way to play it is through an oil ETF.
Exchange-traded funds, or ETFs for short, can be an efficient, profitable place to invest your money.
Oil ETFs look especially appealing right now. Oil prices are above their 50-day moving average and oil is a good momentum play. The most efficient way to play it is through an oil ETF.
There are a number of oil ETFs that have been making strong moves amid the month-long run-up in crude oil. In this report there are three that stand out.
We name them in your FREE report, 3 Oil ETFs to Buy as Crude Prices Rise, Plus: What Is an ETF Anyway?.Get My Free Report Now!
There are a number of oil ETFs that have been making strong moves amid the seven-month recovery in crude oil. Here are three that stand out:
Oil ETFs to Buy: iShares U.S. Oil & Gas Exploration & Production ETF (IEO)
As the name suggests, this ETF holds oil and gas companies specifically focused on exploration and production. It counts ConocoPhillips (COP), Devon Energy (DVN), and EOG Resources (EOG) among its 10 largest holdings (out of 100). IEO is up 20% since late August, and established a nice-looking base in mid-November after a big run-up in October. If oil prices continue to rise, look for another break higher in IEO.
Oil ETFs to Buy: United States Oil Fund LP (USO)
USO is the best pure-play fund that tracks crude oil prices; it’s the largest, most liquid of futures-backed oil ETFs, with 23 million shares exchanging hands daily and roughly $2 billion in assets.
The USO is up 31% since June 21–riding the coat tails of the big run-up in oil prices during that time.
In fact, over the past five years USO has had a 0.96 correlation (1.0 is the highest) with crude. That’s a good thing now that oil prices are surging again.
Oil ETFs to Buy: Vanguard Energy ETF (VDE)
With 150 stocks, the Vanguard Energy ETF gives you exposure to every facet of the energy-sector rally.
Some of the usual suspects are among the VDE’s biggest holdings: Exxon Mobil (XOM), Chevron (CVX) and Schlumberger (SLB). Still, oil companies only make up 46% of the fund, so the VDE could use some help from natural gas prices, which have yet to rally in the same way oil has.
After bottoming at 84 in late August, the fund been on a tear since, pushing as high as 96 last month. It currently trades at 95.
The longer energy remains a popular rebound play on Wall Street, the better the chances of VDE expanding on its recent rally.
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*This post has been updated from the original version, published in 2016.