Energy stocks can be hot and cold, but when they're hot, they can move as quickly as any tech stock. And it's a popular sector to trade when oil prices skyrocket or geopolitical tensions ratchet up, as prices can become highly volatile and traders jump into the action.

Because of that volatility, a list of the best performers won't tell you which stocks will do well in the future, but many of the top energy stocks remain the "best of breed" for years. And sometimes energy companies attract a big name investor or two, such as legendary Warren Buffett, who has been acquiring shares in Occidental Petroleum ( OXY ) in the recent past.

Below are the best-performing energy stocks, which includes exclusively energy stocks from the Energy Select Sector SPDR Fund ETF (XLE).

Best energy stocks as of December 2024

Should you invest in the hottest energy stocks?

Investing in individual stocks, particularly in the energy sector, can be difficult. You need to understand the dynamics of the industry but also the specific exposure that each energy company has, including the quality of its producing assets. For those who have the time and willingness, investing in individual stocks can be rewarding, but it's important to understand that energy stocks are some of the most volatile and some of the most prone to bankruptcy.

But if you don't have the time or willingness, you can still invest in energy stocks, even with a little knowledge. Buying an index fund based on the energy industry or even others such as tech stocks allows you to make a diversified wager. Index funds track a specific collection of stocks, and don't try to beat the market but rather get the weighted average return of their holdings.

So if you want to play the rise of energy stocks, consider investing in exchange-traded funds (ETFs) or mutual funds that focus on that specific sector. You'll get the benefits of a diversified portfolio with the potential upside that energy stocks are famous for, though not without risk.

Diversification can help protect you from a company-specific risk (such as bad management), but it won't protect you from industry-specific risk (such as declining oil prices). So whether you're investing in companies or funds, understand the drivers of your investment returns.

Bottom line

Following the hottest stocks can be a good way to track what the market likes right now. But if you're investing in individual stocks or even sector-based funds, it's vital that you analyze the business and understand how you're going to make money in the future and not invest through the rearview mirror. You'll end up chasing yesterday's performers and miss out on tomorrow's.

And you never have to buy anything you don't like, even if it is hot. As Buffett once said, "The stock market is a no-called-strike game. You don't have to swing at everything -- you can wait for your pitch."

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.