The collapse of the energy sector provides profitable purchasing opportunities

The energy sector has seen significant activity this year, with a significant increase in oil prices, up 13.33% year-to-date, and strong performance by major energy companies. Despite the recent slowdown, current sector dynamics suggest a favorable risk-reward scenario for investors seeking exposure. SPDR Energy Select Sector Fund NYSE:XLEthe leading energy sector exchange-traded fund (ETF), is up 10.05% year-to-date, even after falling nearly 7% from its 52-week high.

This recent decline could provide an excellent buying opportunity as the sector continues to consolidate higher, well above the rising 200-day simple moving average (SMA). Let’s take a look at the current state of the energy sector and its largest stocks to understand why now might be a great time to consider going long.

Energy Select Sector ETF: Bullish Breakout Potential

XLE aims to reflect the performance of the Energy Select Sector Index, which includes companies engaged in oil, gas, operational fuels, and energy equipment and services. Despite the recent decline, XLE is trading at 10.05% year-to-date and is technically consolidating upwards.

Earlier this year, XLE broke through multi-year resistance levels near $94, signaling a significant trend change and a breakout on a higher time frame. The move was supported by rising geopolitical tensions, especially in the Middle East. Currently, the ETF is trading well above the rising 200-day SMA. A break above the $95-96 range could trigger a technical breakout from the consolidation phase, potentially leading to a higher part of the uptrend.

Understanding the positions of ETF heavyweights like Exxon Mobil and Occidental Petroleum, a favorite of legendary investor Warren Buffett, can provide additional insight into the overall sector dynamics.

Exxon Mobil: Key XLE ETF influencer with strong growth potential

Exxon Mobil NYSE:XOM, the largest holding in the XLE ETF with a weight of 26.76%, is key to influencing the ETF’s performance. XOM is the second largest oil refinery in the world, with a market capitalization of almost half a trillion dollars. With a P/E ratio of 14 and a dividend yield of 3.33%, XOM is a significant player in the energy sector with an attractive valuation in terms of value.

Exxon Mobil outperformed year-to-date, with its stock up more than 14%. The stock recently broke through the major resistance level at $120, indicating strong upside momentum, before pulling back and forming a bullish cup-and-handle pattern. If XOM can continue to consolidate its bullish pattern, it could easily offer an attractive long entry before hitting new 52-week highs.

Based on the ratings of 18 analysts, the consensus recommendation for the company’s shares is “moderate buy” with an impressive growth forecast of almost 18%. Morgan Stanley analysts recently reiterated their “overperform” rating on the stock and their $145 price target, which predicts an upside of over 23%.

Occidental Petroleum: Critical XLE stock with significant breakout prospects

Western crude oil NYSE:OXY is another key energy sector stock favored by renowned investor Warren Buffett. Buffett’s company, Berkshire Hathaway, has a significant stake in OXY, underscoring its importance. This year, OXY has achieved modest results, up nearly 4% year-to-date.

Occidental is a global oil and gas company with operations in the United States, the Middle East, Africa and Colombia. Following the acquisition of Anadarko Petroleum in 2019, OXY became the sixth-largest U.S. oil and gas producer by market capitalization. The company has a market capitalization of $54.98 billion, a P/E of 16.94 and a dividend yield of 1.42%. OXY is the twelfth largest holding in the XLE ETF, weighing 2.52%.

Technically, the stock has been consolidating for several years, with $70 being a critical resistance level. A break above this level could signal an uptrend on higher time frames, making this a stock worth watching closely. While the stock is more than 13% away from its 52-week highs and breakout confirmation level, a move above $70 would represent a much longer time frame and a significant breakout.

Bottom line: The best opportunity to buy the bullish XLE ETF

The recent slowdown in the energy sector creates a potentially attractive buying opportunity from a risk-reward perspective. The XLE ETF, up 10.05% year-to-date, is consolidating higher above its rising 200-day SMA. A break above the $95-96 range could signal a technical breakout and further growth.

Core stocks such as Exxon Mobil and Occidental Petroleum play a key role in driving the sector’s overall momentum. Exxon recently broke through significant resistance before retreating, and Occidental is poised for growth with full-year earnings growth forecast at 26.99%. These actions provide valuable information about the potential direction of the sector’s development. Investors should closely monitor these largest companies as they consider gaining exposure to the energy sector during its consolidation phase.

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