The Best of the Energy Rally Is Over and Investors Should Not Jump in Now, Trader Says

Lucy Nicholson | Reuters

While the rest of the markets sold off, one S&P 500 sector has taken off.

Energy stocks have surged nearly 9% over the past week as Brent oil traded near a three-year high and natural gas rallied. The group is also the top performer this year, leading the S&P 500 with a 40% gain.

But, it may be too late for investors looking to buy in on more upside, according to Gina Sanchez, chief market strategist at Lido Advisors.

"Energy had a long way to catch up," Sanchez told CNBC's "Trading Nation" on Tuesday, explaining its big move this year. "They were big negative earners during the pandemic and so as the economy reopened and energy demand started to pick up, naturally that was going to be a boon for all energy companies."

Upside potential may have already been exhausted, Sanchez said.

"The [oil] spike is predicated on disruptions in supply meeting this big demand and those tend to happen in very sudden moments and will work themselves through. Energy prices go up quickly, and come down slowly, exactly the opposite of the stock market," she said. "If you didn't experience this spike, then you're really in for the long haul. You're in it for 2023, 2024 when energy prices should get back up over where they are."

John Petrides, portfolio manager at Tocqueville Asset Management, disagreed – he sees energy stocks as having more gains ahead.

"I don't think you've missed the rally in energy and the fact that the price of the commodity has gone up 100% but the stocks really haven't followed as much," he said during the same segment.

One stock, in particular, looks attractive to Petrides right now – Kinder Morgan.

"We think they'd be a beneficiary in this market and … you're getting a 6%-plus yield in an environment where finding income is really hard to do," he said.

Kinder Morgan has a 6.4% dividend yield, far higher than the 1.4% for the broader S&P 500.

Disclosure: Tocqueville holds KMI.


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