Monday Money Tip: Tips for handling oil stocks

If you're brave enough to think oil stocks have been fairly repriced, here are some ideas on how to play the sector.

First, here's an exchange-traded fund that broadly represents the energy industry: Energy Select Sector SPDR (symbol: XLE). Its top holdings include ExxonMobil, Chevron, Schlumberger, ConocoPhillips, and EOG Resources.

Ernie Cecilia, chief investment officer of Bryn Mawr Trust, instead is buying shares in individual low-cost producers such as EOG and ExxonMobil, he says, as the latter company "can make money with oil even at $40 a barrel." Bryn Mawr owns both stocks currently for its clients.

Better-capitalized, lower-risk companies offer fewer problems right now, he adds. British Petroleum, for instance, could still face legal and financial issues from the Gulf of Mexico spill.

Cecilia also has been buying the logistics/trucking concern UPS, noting that falling oil prices benefit transport companies.

J.P.Morgan Private Bank's Chris Millard explains that all markets are skittish in the face of falling oil prices.

From here, Millard says, he expects continued volatility into year-end, given volatility in oil, Russia, and light trading volumes. But the U.S. outlook remains strong.

"We still see double-digit gains on the S&P [500 index] over the next 12 months, driven primarily by earnings growth," he adds.

Falling oil prices are having broad implications. The historically unprecedented price crash spooks the market, as investors wonder how much is a supply issue vs. some indicator of a recession on the horizon.

The whipsaw effect in commodities has hurt local investors such as Brandywine Asset Management, a commodity-trading adviser that reported that losses in one of its funds fell 6.4 percent just in September, and ended the 2014 year with a total loss of 1.7 percent. Thornton-based Brandywine's leveraged fund was down 8.2 percent for the full year. A full investor report is available at www.brandywine.com.

The energy sector outperformed in the first half of 2014, but then fell more than 25 percent from June 2014 highs, to end flat for the full year.

Oil prices have collapsed, with West Texas Intermediate down from $104 to recent lows of under $50 a barrel. Plus, there's a lot of supply growth from American shale and OPEC's decision not to cut production.