Oil prices crashed in early 2020, taking energy stocks on a wild ride. With the sector only up 2% since 2014, is this one to avoid, or one with room to run?

In this clip from "The Rank" on Motley Fool Live, recorded on Jan. 31, Fool.com contributors Jason Hall, Dan Caplinger, and Matthew Frankel, CFP®, explore their predictions for the energy sector in 2022, and share some recommendations for how to invest in the space.

Matt Frankel: Moving right on to No. 5, this is energy. Another one that Dan ranked higher than Jason and myself. I was surprised Jason didn't rank this higher. I am not a huge energy bull at this point, I think that oil has gone pretty high over the past year or so. I mentioned energy is the best-performing S&P sector over the past year, at about a 65% gain in a one-year period, which is pretty remarkable when you consider what the rest of the market has done. But why don't we start with Jason this time. Why did you rank energy toward the middle of the pack, and where do you see it going in the future?

Jason Hall: This is actually probably one that I struggled the most with. Because it's the sector that I've probably studied and followed the longest, and this is the important thing I want to categorize what is energy. Energy is oil and gas. That's all it is. It's not renewables. It's not energies, it's not the yieldcos that operate solar farms and sell the power to utility companies that might be taking the business away from natural gas companies that were selling them gas for power from coal companies that are now losing those coal sales because they've closed the coal plants. It's very specifically just companies in the oil and gas industry. I'll start with this. I think there's a very good chance of the energy sector does lead the way again this year, maybe two years in a row, that would happen.

Here's the thing I want to share a chart here. This goes back to the beginning of 2014. The purple one is the S&P 500 energy stocks, 2% in total return. That's even the dividends that have been paid by Chevron and Phillips 66 and ExxonMobil etc. Two percent in total returns since the beginning of 2014. That also happens to be the last time that oil traded for more than $100 a barrel. This industry has gone through a tremendous amount of tumult. There has been probably hundreds of billions of dollars at this point in underinvestment in the resources. That's the case for this being the best performing sector. I put it in the middle of the pack because I am still unconvinced that there will not be more of the stuff that actually happened in early 2020. Everybody forgets that oil prices started crashing in early 2020, not because of COVID, but because Russia and Saudi Arabia got into a major saber-rattling. Saudi Arabia just cranked up its oil output. They just absolutely cranked it up, and then they crank up their exports by changing some things about domestic consumption so they can export even more oil. They were literally logistically sending oil to the ports where Russia's biggest customers accept the oil to go after Russia. Russia responded by raising their production, too, and oil prices crashed. Then COVID happened and everything that happened from there. To me, that is the Damocles that always swings above the oil and gas industry that creates substantial risk when you have oil states to control so much of the global supply that their behavior is not predicated necessarily on a GAAP profit, like publicly traded oil companies. That's it to me. It's just the concern about when you're not the low-cost leader and you're not the biggest producer and that's a country. The controls all of the resource. It keeps me from ranking it higher.

Dan Caplinger: I'll do the counterpoint on that. I see Jason's chart and my mean reversion says oil prices were $100 in 2014. They are $85 now. Why is the sector only up 2% when everybody else is up triple-digits? That tells me even with 65% gain last year, there's plenty of room for it to continue to go up. I think the tailwinds are still there. I think the stocks are not priced for any assumption that energy prices will stay anywhere near $80 a barrel. That's why I like the sector. I ranked it No. 3. I do think there may be some pullback in demand, but I don't think it's going to be marked as far as stocks. I like Devon Energy, DVN, my buddy Matt DiLallo, it's one of his favorite picks as well. He's written all about it and I will defer to his analysis on it, but it's a good play that I think and it's a good counter-cyclical play against all of the electric transition stories that I'm seeing elsewhere in the market.

Hall: Yeah, I put Pioneer Natural Resources in there too. It's a really interesting company in this space. I will say this though, with [inaudible 04:43:13] both you're talking about largely leveraged bet on an oil prices. That's the stocks are going to track that. If you're looking for something more secure, think about investing in a sector ETF because it gets you exposure to those companies, but also the stability of the ExxonMobils and Phillips 66s of the world with their giant cash flows and their integration and the dividends that they pay. If you're more concerned about income, look at Phillips 66. Look at one of those midstream companies that aren't really exposed to oil prices. If you're worried more about the downside.