Energy Stocks Worth Keeping

The steep climb seen earlier this year is unlikely to be repeated, however, as other factors could hold shares back.

The first is financials. Bank stocks have bounced back from lows following the Fannie Mae/Freddie Mac turmoil. The KBW Bank Index is up more than 30 percent in the last month. That's causing some investors to consider taking some of those energy profits to reinvest in beaten-down financial names. Sector rotation among investors who used energy stocks as a safe haven could be "the major headwind," Senger says.

Profit-taking could also come ahead of the election. Analysts say neither presidential candidate is likely to be as friendly to Big Oil as the Bush administration. Also, Sen. Barack Obama's support of raising the capital gains tax could have some oil-heavy investors looking at several years of gains considering their options in light of possibly higher tax penalties.

Also, some experts argue the drop in oil could keep prices a bit below where they are today, if the market underestimates just how much high prices and slow economic growth can hurt demand.

Writing in the Financial Times, Ed Morse, Lehman Bros. chief energy economist, predicts that, "[b]arring a big hurricane in the Gulf of Mexico or a disruptive geopolitical event, oil prices appear to have peaked." He calls hopes for a rebound "wishful thinking" and sees prices stabilizing around $90-$100 a barrel.

There have been some early casualties among those betting energy's rise would continue.

Billionaire oilman T. Boone Pickens, who made headlines recently with predictions that oil could hit $300 a barrel in a decade, and a big push for wind farming. The New York Post says the commodity portion of his hedge fund BP Capital lost about 35 percent in July.