Energy poised to be year’s big winner in turnround

What a difference a year makes. Having ended 2015 as the worst performing sector on the S&P 500, energy stocks are on track to become this year’s biggest winners as this month’s rally in crude prices further extended the sector’s gains.

Despite falling 0.2 per cent on Friday, the S&P 500 energy index is still up more than 25 per cent this year, making it the top gainer among the 10 main sectors tracked on the S&P.

The index has jumped 12 per cent since early November after it appeared increasingly likely that Opec would be able to reach an agreement to cut oil production.

News this month that the cartel had managed to persuade major non-Opec oil producers to get on board with the output curbs has only added to the attractiveness of the sector’s once beaten-down stocks.

Indeed, four of the 10 best-performing stocks on the S&P 500 this year hail from the energy sector, with oil and gas producer Oneok up 138 per cent and Texas-based Spectra Energy clocking in a near-75 per cent rise.

Oil and gas support services provider Quanta Services and Chesapeake Energy were the other big movers, rising 72 per cent and 65 per cent, respectively.

The strong run is expected to continue. After two years of slumping sales and profits, analysts say they expect the sector to finally return to earnings growth in 2017.

Factset is projecting a 477.3 per cent jump in earnings per share for the sector in the second quarter and a 183.4 per cent and a 149 per cent rise in EPS for the third and fourth quarter.

The forecasts dovetail with recent comments made by the big energy companies, in which they signalled that the worst of the industry’s slump could be over.

“Corporate profits look poised to increase in 2017 and 2018 due in part to easing bank lending standards, a rebound in small business optimism, tax cuts and energy sector recovery,” said Citi in a note earlier this week.

Elsewhere, Weight Watchers gained for a fifth straight session. The weight-loss company’s shares had surged by as much as 18 per cent on Thursday after it announced that Oprah Winfrey, its celebrity spokeswoman, had lost 40 pounds using its programme and would share her personal experience in a new marketing campaign.

Although the stock later pared its gains to close up 5.3 per cent, it tacked on another 8.8 per cent on Friday, taking its total gains this week to more than 19 per cent.

Red Hat, the developer of open-source software, bounced back to trade 3.4 per cent higher on Friday, a day after suffering its biggest sell-off in 10 years.

The stock fell 13.9 per cent on Thursday after the company reported disappointing revenues and said that its chief financial officer was leaving.

In the wider market, the Dow Jones Industrial Average failed to hit 20,000 before Christmas. Trading thinned out ahead of the holiday and there was little news on the deck to jolt the gauge out of its lethargy on Friday. It ended the day 0.1 per cent higher at 19,933.81.

The S&P 500 gained 0.1 per cent to 2,263.79 and the Nasdaq Composite added 0.3 per cent to 5,462.69.