Energy Was Top '05 Stock Sector, Telecoms Worst

U.S. energy stocks sharply outperformed other sectors in 2005, as oil prices hit record highs following Hurricane Katrina, while telecommunications and consumer discretionary stocks were among the year's worst performers.

Energy sector stocks in the Standard & Poor's 500 index ended the year up 29.1 percent and utility sector stocks rose 12.8 percent, while the telecommunications services sector fell 9 percent and consumer discretionary fell 7.4 percent. For the year, the S&P 500 index ended 3 percent higher.

Within the energy sector, oil and gas refining and marketing companies as a group gained 77.3 percent, while oil and gas exploration and production companies rose 64.7 percent.

"These are the year's big winners," said Kevin Kruszenski, head of listed trading at McDonald Investments Inc. in Cleveland, Ohio.

Oil prices rose to a record $70.85 a barrel on Aug. 30 as Hurricane Katrina slammed into the U.S. Gulf Coast, damaging oil and gas facilities. Energy prices eased since then, with NYMEX February crude futures settling at $61.04 on Friday.

But those gains helped shares of energy companies, including Exxon Mobil Corp. (XOM), the world's largest publicly traded oil company, which ended the year up about 10 percent. Oil field services company Halliburton Co. (HAL) rose more than 50 percent for the year.

"It was the combined factor of Iraq, and the real squeeze on (oil) demand," said John O'Brien, head of sales trading at KeyBanc Capital.

Later in the year, "energy lost some of its luster because the scenario put forth by bulls had so many holes in it. Demand has not exceeded supply, and energy prices went down," said Ned Riley, CEO and CIO of Riley Asset Management. The energy sector fell 7.7 percent in the last quarter of the year.

Higher oil prices, meanwhile, were among factors that hurt consumer discretionary stocks, including automaker shares.

"The rising price of gas heavily impacted where the discretionary dollar was going," O'Brien said. "Gasoline at $3 (a gallon) really freaked people out."

Kruszenski said the consumer discretionary group has "been a tough one. It seems everywhere you turn everybody is talking about a consumer that's tapped out."

Telecommunications services were hard hit as well, as the number of traditional phone lines declined and operators faced increasing competition from cable television providers.

"I think that new technologies are starting to challenge some of the old technologies," said Thomas McManus, equity strategist at Banc of America Securities.

Verizon Communications's (VZ) stock is down about 25 percent for the year.

Health care, which ended the year up 4.9 percent, and financials, which gained 3.7 percent, followed energy among top performers. Other gainers included the materials sector, up 2.2 percent for the year, consumer staples, up 1.3 percent, information technology , up 0.4 percent, and industrials, also up 0.4 percent.