One High-Energy Play for 2025 By Lucas Downey, Contributing Editor, TradeSmith Daily Last month, we made note of the strength in energy stocks. Notably, we highlighted how a positive January for the group is a good omen for forward momentum. Now that January is in the books, and the S&P 500 Energy sector gained 2%, let’s take stock of how to play this bullish signal. Not only will we add to the powerful signal study we performed back then… We’ll also enhance it with another proof point. There’s a good data-driven reason to keep an allocation to oil and gas names in the months ahead… And after we parse through the oil landscape, I’ll offer a top-tier stock to keep on your radar. Energy Stocks Had a Strong Start in January All sectors gained in January… except for Technology. That signals a broadening rally – a Great Equalizer trade we’ve been writing you about for some time. It also suggests there’s more gas in the tank for the overall market. But you should be choosy on where you place your bets. I expect 2025 to be a bit bumpier compared to the last two years simply due to the new administration. That said, the energy patch is becoming more and more interesting by the week. Below is a snapshot of the Energy Select Sector SPDR ETF (XLE), which houses a basket of major oil and gas companies. This fund bounced 2.3% in January: 
Why I’m zeroed in on oil and gas names in particular is due to the signal study from last month that pointed to above-average gains in Q1 and the full year when the first month of the calendar is green. You can review that post here. But let’s take it a step further. The S&P 500 Energy sector climbed 2% in January. Instead of only looking at positive Januarys, let’s isolate years when January climbs at least 2%. From 1995-2024, 10 out of 30 years met this parameter. Here’s what’s so important… The average Q1 for energy stocks shakes out at a 3.3% gain. That’s for all years, no matter what happens in January. However, when January is up 2% or more, the first three months jump 12.7% on average. And the full year averages a leap of 18.8%: 
I wouldn’t fade this recent strength. And betting on a high-quality company is the best way to take advantage of it… One Top-Ranked Energy Stock for 2025 If you’ve played in the energy stock arena, odds are you’ve felt the fits and starts of the group. Rallies can appear and fade soon after. I find it important to bet on a leader in the group with a powerful uptrending chart. Baker Hughes (BKR) fits that profile to a T. Here’s a one-year chart of Baker Hughes absolutely dominating the S&P 500 (SPY ETF), with a 63% jump vs. 23% returns for large caps: 
They say the trend is your friend. They should also say that big uptrends usually reflect a superior business! Baker Hughes operates in two business units: - Oilfield Services & Equipment – the company describes this unit as products and services for onshore and offshore oil field operations across the life cycle of a well.
- Industrial & Energy Technology – includes gas technology equipment and services, industrial products and solutions, and climate tech solutions.
Ultimately, the company caters to the energy and industrial value chain. And business has been thriving. The latest Q4 earnings report easily bested Wall Street estimates. EPS came in at $0.70/share vs. $0.62/share estimates. Revenues of $7.36 billion trumped expectations of $7.07 billion. Not only was this impressive, Baker Hughes pumped up the quarterly dividend by 10% to $0.23/share up from $0.21. Here’s a formula to memorize: Earnings beats + dividend growth = worthy of investigation. And one of my favorite ways to quickly and effectively size up a potential winning stock is with the Quantum Score. This metric instantly grades a company on fundamental characteristics and technical trends. Values above 70 are the Green Zone. At 77.6, BKR is one of the highest-ranking names in our universe: 
This is one of the most powerful indicators in the TradeSmith arsenal. Jason Bodner’s Quantum Edge Pro relies on this metric, and it’s found many big winning stocks not on the lips of the mainstream media. As a bonus, you’ll get access to the Quantum Score so you can quickly size up any stock instantly. To wrap up, stocks are expected to bob and weave in 2025. But history says energy stocks are worth a spot in your portfolio. However you express this theme, make sure you’re using cutting-edge software like TradeSmith’s to narrow the playing field of candidates. Regards, Lucas Downey
Contributing Editor, TradeSmith Daily | 
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