After a bear market rally that lasted just a week, the major indices are once again hovering near the lows of the year. While April’s retail economic data that was mainly in line with economic forecasts may foreshadow a light at the end of the tunnel, retailer earnings took a major hit in the first quarter as inflation ate away at their bottom lines. This begs the question: is the worst behind us or are lower lows ahead? 

Many stocks are now down 50-80% from their peaks, and most are still falling. To give readers a sense of where things currently stand, as of yesterday just 36% of stocks within the S&P 500 were trading above their respective 200-day moving averages. It’s even worse for the Nasdaq, as just 13% were trading above the heavily-watched level. While these are historically low percentages, things can certainly get worse. During the March 2020 COVID-related plunge, these numbers dropped to the low single digits.

While the bear market is undoubtedly painful, certain areas of the market have done well this year. We want to target pockets of the market that are showing relative strength and weathering the volatility. The one area that is showing these characteristics without question this year is energy. With recent inflation readings coming in above expectations and surging prices seemingly out of the Fed’s control, energy is well-positioned to withstand any further market pullback in the short-term.

It's not just the U.S. that is witnessing high inflation. Countries around the world are having to adjust to higher prices. Canada’s inflation, for example, just hit a 6.8% year-over-year change – the highest reading since 1991.

Image Source: YCharts

The various Zacks Ranking systems are confirming the notion that energy is the place to be. We’re going to focus on the Zacks Oil & Gas – Integrated – Canadian industry group, which currently ranks in the top 1% of all Zacks Ranked Industries. It is displaying some favorable characteristics as illustrated below:

Image Source: Zacks Investment Research

The stocks contained within this industry group are witnessing extremely positive earnings estimate revisions. The industry group is part of the Zacks Oils & Energy sector, which ranks #1 out of all 16 Zacks Ranked Sectors.

Let’s examine a Zacks Rank #1 (Strong Buy) stock contained within this favorable industry and sector combination.

Imperial Oil Limited (IMO Quick QuoteIMO - Free Report)

Imperial Oil is Canada’s largest integrated petroleum company. IMO explores for, produces, and sells crude oil and natural gas in Canada. Imperial is a subsidiary of Exxon Mobil Corporation. Its operations also include the refining and marketing of petroleum products in addition to the manufacture and sale of petrochemicals. IMO was incorporated in 1880 and is also based out of Calgary.

IMO has surpassed earnings estimates in two of the past four quarters. The company most recently posted Q1 EPS back in April of $1.38, a 2.22% surprise over the $1.35 estimate. The stock has been steadily climbing, up 58% in the past year and nearly 40% this year alone.