Wall Street is getting increasingly bullish on energy stocks - and one expert says the overlooked sector could surge 66% if oil prices spike

• The energy sector has gained 17% in 2021 on expectations of an economic rebound and oil market recovery.
• Energy is the best-performing sector in the S&P 500 year-to-date.
• Fundstrat's Tom Lee says energy could surge 66% if oil prices spike to $80 a barrel.
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Wall Street is growing increasingly bullish on 2020's worst-performing sector: energy.

The sector has surged 17% in 2021 on expectations of an economic rebound and oil market recovery, and analysts anticipate further gains. It's also the best performing sector in the S&P 500 year-to-date.

Nuveen's Saira Malik said on Tuesday that energy-related stocks have bottomed and should continue to improve on a relative basis. Meanwhile, equity strategists from Jefferies highlighted how energy has remained a "popular choice" among investors, with inflows totaling 13.5% of its asset base year-to-date.

Now, Fundstrat's Tom Lee says the sector could surge up to 66% if oil prices spike to $80.

The firm's head of research said in a Tuesday note that despite sizeable energy gains in 2021, barely any of his institutional clients are talking about energy stocks. The 17% YTD gain in the sector has risen without any institutional support, while oil, which is loosely linked to energy stocks has also gained, said Lee.

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Looking at the relationship of oil and energy stocks since 2010, Lee says the Energy Select Sector SPDR Fund (XLE) should be 42% higher than current levels if oil remains at $60 per barrel.

If oil prices rise further to $80, XLE should be at $75, a 66% upside from current levels, Lee added. XLE closed up 2.55% on Tuesday.

"So the interesting takeaway is that energy stocks still seem to have comparative upside given the sizable move in crude oil prices," Lee said.

US oil prices rose on Tuesday as freezing-cold weather battered Texas's energy infrastructure, leaving millions without power.

WTI crude oil was up 0.82% to $60.23 per barrel as of 3:45 pm ET. Meanwhile wholesale energy prices skyrocketed, at times above the market cap of $9,000 per megawatt hour, compared to prices of around $25 to $50 per MWh before the winter storms.