Big Money is still flowing into energy. There are several ETF plays within energy, many of which contain powerhouse stocks. Inflows have been strong, so there could be some overextension at play and maybe a pullback. Still, the longer-term outlook remains strong.
Markets and Big Money in the Last 6 Months
My research firm, MAPsignals, measures Big Money investor activity. That includes institutions, pension funds, big individual investors, and so on. Our research shows Big Money moves markets.
We created the Big Money Index (BMI), which is a 25-day moving average of large-scale investor buy and sell activity. The BMI has been on a big downward trend since April. Generally, money has been flowing out of market, presumably into “safer” assets that have become more attractive of late. But buying is ticking up of late:
On May 24, the BMI hit oversold territory. It stayed there for a couple days and buying has since pushed it higher, at least momentarily. The key takeaway is when the BMI hits oversold, forward-looking returns stretching from one to 24 months are positive, on average. An oversold BMI is a hugely bullish signal.
But in the face of doubt, investors have flocked to energy this year, making the traditionally defensive sector look appetizing for growth. Given these conditions, we’ve identified some energy ETFs we think have great long-term potential: FCG, FTXN, FXZ, PXE, and FFTY.
Long-term investors should look for ETFs (and their stocks), with great setups. Remember, ETFs are just baskets of stocks, so we need to look at them in detail. MAPsignals specializes in scoring more than 6,500 stocks daily. If I know which stocks compose the ETFs, I can apply stock scores to the ETFs. Then I can rank them all from strongest to weakest.
Let’s get to the five best energy ETF opportunities for June 2022.
First Trust Natural Gas ETF (FCG) Analysis
Natural gas is becoming more popular as a potential “bridge” energy source between heavy reliance on fossil fuels to a cleaner energy future. Big Money believes in it as it’s been buying, especially since October of last year, which always helps:
FCG holds several big stocks. One example is Coterra Energy Inc. (CTRA), which has phenomenal one-year sales growth of 161.2% and a profit margin of 31.6%. It’s one of the biggest holdings in FCG and is becoming a Big Money magnet:
First Trust Nasdaq Oil & Gas ETF (FTXN) Analysis
Thanks to the geopolitical situation right now, oil and gas are back. Consequently, prices for energy are up. That bodes well for energy ETFs with fundamentally sound stocks. The FTXN chart reflects the energy boom:
One great stock FTXN holds is Marathon Oil Corporation (MRO). It has one-year sales growth of 80.9% and a profit margin of 16.9%. As you can see, Big Money has been buying MRO in chunks over the past year, with heavy buying starting in late summer 2021 and really ramping up this year:
First Trust Materials AlphaDEX Fund (FXZ) Analysis
While not a pure energy fund, FXZ is squarely within the energy/industrials/materials mix and has rock-solid fundamentals. It’s been on an upward trend since last summer and saw Big Money action back in March:
A fantastic stock within FXZ is Westlake Chemical Corporation (WLK), an international manufacturer and supplier of petrochemicals, polymers, and building products. It’s jumped since the new year, which isn’t surprising given its growing sales (one-year sales growth of 57.0%) and three-year EPS growth of 143.4%. WLK has been attracting lots of Big Money:
Invesco Dynamic Energy Exploration & Production ETF (PXE) Analysis
As always with ETFs, fundamental strength within underlying assets is a high priority. PXE is loaded with great stocks. It’s been progressing well since last year, and jumped nearly 11% in the last month:
A great stock within this ETF is Occidental Petroleum Corporation (OXY). Warren Buffett recently disclosed big buying in OXY. One of the best investors of all time buying in is a good sign. It’s had one-year sales growth of 51.5% and sports a profit margin of 10.7%. The Big Money has been scooping up OXY all year and the stock has more than doubled:
Innovator IBD 50 ETF (FFTY) Analysis
Investors Business Daily releases an “innovator list” every year and this ETF tracks those names. While it’s not a dedicated energy ETF, but many of its top holdings right now are energy stocks. In fact, the top five holdings are all energy firms. It’s down right now, but that may prove to be a big bargain for long-term investors:
One great stock in FFTY is Matador Resources Company (MTDR), an oil and gas exploration firm. It’s seen Big Money buying because MTDR is fundamentally strong – it has one-year sales growth of 117.7% and a profit margin of 31.4%. But it’s possibly overextended and may pull back:
Here’s a Big Money recap:
- When Big Money buying heats up, stocks and ETFs tend to rise
- Deep selling on great quality can be a phenomenal opportunity
- Repeated buying usually means outsized gains
Bottom Line and Explanatory Video
FCG, FTXN, FXZ, PXE, and FFTY are my top energy ETFs for June 2022. While they’re not all pure energy plays, they all have sizeable stakes in energy companies and solid fundamentals. These picks can rise higher, in my opinion, largely because they each hold great stocks and energy is in demand.
To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com
Disclosure: the author holds no positions in FCG, FTXN, FXZ, PXE, FFTY, CTRA, MRO, WLK, OLK, or MTDR at the time of publication.