In Gold: play the shares, not the metal?, I noted the apparent disconnect between the performance of mining stocks and gold and suggested that the shares may represent a better bet in the near term.
However, there seems to be an even greater disparity in another part of the commodity universe. Over the past 10 months or so, crude oil prices have soared by more than 70%, while energy sector shares have only risen about 5%.
To be sure, there are valid reasons why the stocks might not always track moves in the underlying commodity.
For one thing, the largest energy firms (with the heaviest sector weightings) have fully integrated operations (e.g. they explore for, pump, refine and market petroleum-related products), so a rise in the price of crude oil may not flow directly through to their bottom lines.
Historically, there has also been a strong connection between energy sector results and the health of the economy.
Regardless, given the fact that shares in the energy sector have lagged so dramatically and are now approaching levels relative to the price of oil that have served as support in the past, it may be an ideal time to buy the stocks and sell the commodity.
One way to play it (for those with the appropriate risk profile): buy the Energy Select Sector SPDR Fund ETF (AMEX: XLE) and sell (or short) the United States Oil Fund (AMEX: USO).
Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle.
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