Energy Stocks Ready to Melt Down

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It doesn't take a super-secret report to know that energy stocks have been on fire. Over the past five years, the energy sector has outperformed the S&P 500 by 125 points. However, recent declines in oil prices may be signaling an end to the easy money. Formerly cherished highfliers have fallen hard recently; Tesoro (NYSE: TSO), for one, is down about 65% year to date. How might we hope to avoid these kinds of meltdowns?

CAPS screener to the rescue! Harnessing the power of the Motley Fool CAPS investment community, I screened for companies that inspire bearishness among investors. The following stocks were rated five stars at the beginning of the year, but they've since dropped to three stars or worse.

Company	Recent Price	1-Year Return	CAPS Rating
Cimarex (NYSE: XEC)	$43.95	19%	***
Comstock Resources (NYSE: CRK)	$46.40	50%	**
Repsol (NYSE: REP)	$28.47	(16%)	***
Santos (Nasdaq: STOSY)	$62.75	21%	***
Whiting Petroleum (NYSE: WLL)	$64.91	46%	***

Data provided by Motley Fool CAPS and Yahoo! Finance.

Note that this is not a list of companies to buy or sell. In fact, all these companies may turn out to be solid investments.

For instance, CAPS member dexion10 recently wrote the following about Whiting Petroleum: "I think it is a good value vs. peers and longer term if you believe in peak oil you'll see that [Whiting Petroleum] owns great assets in the U.S. that will appreciate in value with no risk of nationalization."

Considering that three-star stocks as a group were flat over CAPS' first 20 months of tracking, while five-star rated stocks trounced the market by 12 points annualized, I'd rather not bet against the wisdom of the Motley Fool CAPS community. Given this, I'd much rather invest in companies like five-star-rated Noble (NYSE: NE) for my energy fix.

On Oct. 7, 2008, Fool Co-Founder David Gardner and his Motley Fool Pro team will invest $1 million in a portfolio designed to help you make money in any market. In the coming weeks, the team, relying heavily on proprietary CAPS "community intelligence" data, will establish long and short positions in a broad range of securities, including common stocks, publicly traded put and call options, and exchange-traded funds (ETFs). To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.