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- The performance of energy stocks relative to the S&P 500 is well correlated with the price of oil.
- Today’s investors have done a reasonable job of discounting the pair.
- The energy sector seems fairly priced, unless one is making a directional bet on the price of oil.
Why You Should Be Bullish On The Oil And Gas Complex
- The flood of selling in mid-October indicates the weak hands have all given up on the trade.
- The energy sector is undervalued relatively to the stock market. Energy Select Sector SPDR ETF (XLE) sports a P/E ratio of 14.7 vs. 18 for the S&P.
- The largest names in XLE have been enthusiastic about buying back their own shares this year, which increases earnings per share and puts a floor under demand.
- Integrated oil juggernauts are restructuring and downsizing operations, which should boost earnings.
- With oil and other commodities getting crushed, the SPDR energy ETF XLE looks very cheap.
- XLE has vastly underperformed the broader market in recent months.
- I believe XLE is poised to revert to the mean against the market and that the risk/reward setup is terrific at current levels.
Energy ETF: No. 7 Select Sector SPDR Over 2014's First 9 Months
- The Energy exchange traded fund ranked seventh by returns among the nine Select Sector SPDRs during the first three quarters of 2014.
- The ETF ranked second by the same metric among the sector SPDRs over the first half of this year.
- Seasonality analysis indicates the ETF's fourth quarter is neither its strongest nor its weakest of the year.
Include The Energy Sector In Your Long-Term Passive Investment Portfolio
- Investing in S&P 500 sector ETFs rather than the total sector can create a better investment portfolio.
- Over the past 15 years, the energy sector ETF, XLE, has significantly outperformed other sectors.
- The energy sector will continue its growth path and offer good long-term investment opportunities.
- The Energy ETF was the No. 2 performer ranked by returns among the 9 Select Sector SPDRs during the first half of this year.
- Sector rotation qua sector rotation appears to have had either little or no role in the ETF’s share-price performance in 2014.
- Its key driver seems to be the spike in the price of crude oil caused by recent developments in geopolitics.
The XLE And XOP ETFs May Be A Good Lazy Person's Way To Invest In Spiking Oil Prices
- An unknown group blew up a section of the Urengoy-Pomary-Uzhgorod natural gas pipeline June 17, 2014. Many more problems are just waiting to happen.
- The ISIL group attacked the Baiji refinery in northern Iraq today. The Iraqi government requested air support from the US.
- Libyan oil which was 1.6 million bpd of production before the civil war was only about 200,000 bopd as of June 9, 2014.
- Many major energy traders such as Morgan Stanley are bullish on oil prices. There are a variety of opinions on how high prices will go. Little is baked in yet.
Energy Stocks Offer No Refuge In Major Stock-Market Selloffs
- Despite energy stocks' relatively low valuations, they too get sucked into both bull-market corrections and cyclical bear markets.
- The major oil and gas stocks are sold off indiscriminately as the broad stock indexes fall, which is exacerbated by broad-index ETF selling.
- Amplifying the pressure, oil is dumped in lockstep too as futures speculators fear the falling stock markets signal a major economic slowdown. So energy stocks crumble.
Decrease Your Investment Risk Using Natural Hedging
Best And Worst ETFs And Mutual Funds: Energy Sector
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Today, 2:19 PM| Comment!
Mon, Dec. 15, 2:54 PM
- WTI crude oil (USO -3.6%) has now tumbled below $56 per barrel after pushing up near $59 earlier today. The move has taken the starch out a bounce in the Energy Select SPDR (XLE -0.6%) which earlier had been one of the stronger stock market sectors on the session.
- Previously: OPEC has no target price (Dec. 14, 2014)
Mon, Dec. 15, 11:35 AM
- While publicly traded stocks at 35% remain the most popular investment, that's down from 43% one year ago and 49% in 2012. ETFs at 25% are up from 21% one year ago.
- The most popular equity sectors are financials (NYSEARCA:XLF) at 27%, followed by Consumer Discretionary (NYSEARCA:XLY), and Energy (NYSEARCA:XLE), both at 16%.
- Apple (NASDAQ:AAPL) and Berkshire Hathaway (BRK.A, BRK.B) again hold the two top spots for individual picks, with the S&P 500 SPDR ETF (NYSEARCA:SPY), the Health Care SPDR (NYSEARCA:XLV), and the MSCI Emerging Markets ETF (NYSEARCA:EEM) rounding out the top five.
- Source: Tiger 21 Member Favorites Survey
Fri, Dec. 12, 3:27 PM
- Off 3.8% today to $57.68 per barrel, WTI crude oil (USO -3.4%) has tumbled 12% for the week, 16% since Thanksgiving when OPEC couldn't agree on production cuts, and nearly 50% since its peak for the year in mid-June.
- A bear market like this hardly needs an excuse to go lower, but today's cut in estimated 2015 oil demand by the IEA makes for a nice reason.
- Unsurprisingly, the XLE - down 1.3% on the session - is underperforming most sectors and the broad averages.
- On the bright side: The crash in oil prices appears to be boosting consumer sentiment which unexpectedly jumped to its highest level in seven years.
- ETFs: USO, OIL, UCO, SCO, BNO, UGA, DTO, DBO, CRUD, UWTI, USL, DWTI, UHN, DNO, SZO, OLO, OLEM, TWTI, XLE, ERX, VDE, OIH, ERY, DIG, DUG, IYE, FENY, PXJ, RYE, FXN, DDG
Thu, Dec. 11, 2:31 PM| 22 Comments
Wed, Dec. 10, 3:49 PM
- OPEC no longer exists in any meaningful sense and crude prices will slump to $50/bbl over coming months as market forces shake out the weakest producers, Bank of America warns.
- Francisco Blanch, BofA’s commodity chief, says OPEC is “effectively dissolved” after it failed to stabilize prices at its last meeting, and “the consequences are profound and long-lasting.”
- At least 15% of U.S. shale producers are losing money at current prices, and more than half will be under water if U.S. crude falls below $55, the bank says, adding that the high-cost producers in the Permian basin will be the first to feel the pain and may have to cut back on production soon.
- Following the 40% drop in oil prices, "the bulk of the damage to the sector is now done," Deutsche Ban's Lucas Herrmann says, "but it's hard to see what's going to drive share prices higher."
- Nevertheless, Herrmann upgrades BP to Buy from Hold, citing the likelihood that its troubles in the Gulf of Mexico and Russia will see a turning point in 2015.
- ETFs: XLE, ERX, VDE, OIH, XOP, ERY, FCG, DIG, GASL, DUG, IYE, XES, IEO, IEZ, PXE, FENY, PXJ, RYE, FXN, DDG
Wed, Dec. 10, 12:58 PM
- Energy stocks are slammed across the board as oil prices take another nosedive (I, II), with the losses heaviest on shares of small, U.S.-based oil and gas producers.
- “Financial leverage is being thrown out the window, and everything else is being purged as well,” says Simmons analyst Bill Herbert, who adds that cuts to production budgets in the coming year likely will mean more pain for oil service companies.
- Among the hardest-hit shares: TPLM -15.2%, CRK -12.4%, GDP -11.9%, NOG -9.5%, AREX -8.6%.
- Investors have been less quick to dump shares of integrated oil companies, but today they have been smacked too: XOM -2.8%, CVX -2.9%, COP -2.3%, BP -2%, RDS.A -2.2%, TOT -2.3%.
- Today's worst performers on the S&P 500 include OKE -8.2%, DNR -7.4%, NE -5.6%.
- Service companies also are down: SLB -2.6%, HAL -2.7%, WFT -6.6%, BHI -2%.
- ETFs: XLE, ERX, VDE, OIH, ERY, DIG, DUG, IYE, XES, IEZ, PXI, FENY, PXJ, RYE, FXN, DDG
Mon, Dec. 8, 12:22 PM
- The so-called realized correlation of the largest 50 names in the S&P 500 has fallen to 0.062, according to Credit Suisse, about the lowest level since late 1999. It's a far cry from just a couple of years ago, when a writer could describe a day's worth of market action as "risk-on" or "risk-off" and a reader would have a pretty good idea of how their investments fared.
- The lack of correlation should be manna for active fund managers (a stock picker's market), but it's not so - a full 85% of active large-cap fund managers are shy of their bogeys this year, according to Lipper.
- Correlations are lowest in Consumer Discretionary (NYSEARCA:XLY) names, theoretically allowing sharp managers to make money buying winners and selling losers. Meanwhile in energy (NYSEARCA:XLE), plummeting oil prices have correlations turning way higher to 0.683 at last check.
Mon, Dec. 8, 11:15 AM
- Brent crude slumps to a new five-year lows after Morgan Stanley cut its 2015 Brent forecast, saying prices could average as little as $53/bbl although its base case scenario was for $70; the firm's earlier outlook saw oil at $98.
- "Oil prices face their greatest threat since 2009," analysts Adam Longson and Elizabeth Volynsky say, with Q2 2015 likely marking the peak period of dislocation in the absence of OPEC intervention.
- Brent -3.4% to $66.71, WTI -3.1% to $63.81.
- Energy stocks are getting smashed again, exacerbated by ConocoPhillips' (COP -3.3%) 20% reduction of its 2015 capex plans to $13.5B.
- ETFs: USO, XLE, OIL, UCO, ERX, VDE, OIH, SCO, XOP, ERY, DIG, BNO, DTO, DBO, DUG, IYE, XES, IEO, CRUD, IEZ, UWTI, PXE, USL, PXI, FENY, DWTI, PXJ, DNO, RYE, SZO, FXN, OLO, DDG, OLEM, TWTI
Fri, Dec. 5, 9:57 AM
- The American Petroleum Institute says it would accept proposed rules on pollution from oil wells if it heads off a broad federal standard for methane leaks.
- The lobby group says it is willing to meet EPA limits on the release of smog-forming compounds from hydraulically fractured wells; such rules are in place for gas wells, and the EPA is considering expanding them to oil wells.
- Environmental advocates are pushing the EPA to regulate methane throughout production and refining - not just when gas and oil are extracted from underground - as the only way to reduce the volumes of gas being leaked.
- ETFs: XLE, ERX, VDE, OIH, XOP, ERY, DIG, DUG, IYE, XES, IEO, IEZ, PXE, FENY, PXJ, RYE, FXN, DDG
Wed, Dec. 3, 11:32 AM
- The energy sector (XLE +1.5%) continues its momentum from yesterday, leading the way again as the best performing sector in early trading with crude oil rising 1.2% so far today and reports that U.S. well permits fell 40% last month.
- Top performers include Clayton Williams (CWEI +7.7%), Transocean Partners (RIGP +10.6%), Gaslog (GLOG +13.8%) and Energy XXI (EXXI +15.7%).
- Other leading energy names are showing stronger recoveries as they clear last Friday's bearish gap zone: XOM +0.2%, CVX +0.4%, COP +2.5%, OXY +2.5%, DVN +2.9%, EOG +2.5%, HES +2.2%, MUR +1.5%, NBL +2.3%, PXD +4.2%, SU +3%, CNQ +1.9%.
- Some analysts warn that the worst may not be over, however, as much of the advance is being driven by investors repurchasing ETFs they used to make short bets; investors also could opt to sell oil shares at a loss in coming weeks to reduce tax burdens.
Wed, Dec. 3, 2:05 AM
- Falling oil prices sparked a decline of almost 40% in new well permits issued across the U.S. in November, with only 4,520 new well permits approved last month, down from 7,227 in October.
- New permits, which outline what drilling rigs will be doing 60-90 days in the future, showed heavy declines for the first time this year across the top three U.S. onshore fields: the Permian Basin, Eagle Ford and Bakken shale.
- ETFs: XLE, ERX, VDE, OIH, ERY, DIG, DUG, IYE, FENY, PXJ, RYE, FXN, DDG
Tue, Dec. 2, 2:48 PM
- Energy stocks (XLE +1.4%) are posting the day's largest gains among S&P sectors, rebounding from recent losses even as Nymex crude oil fell another $2.05 to $66.97/bbl.
- Refiners Marathon Petroleum (MPC +4%) and Valero (VLO +4.1%) and pipeline operator Williams Cos. (WMB +1.5%) are among the top gainers, while losers include most oil services companies such as Halliburton (HAL -2.2%) and rig operator Transocean (RIG -3.7%).
- Anadarko Petroleum (APC +1.6%), Cimarex Energy (XEC +1%), Devon Energy (DVN +0.7%), EOG Resources (EOG +3.8%) and Marathon Oil (MRO +3.5%) were selected top “safe haven” picks for analysts at Tudor Pickering Holt, which said they are “liquid names with high-quality assets and healthy balance sheets."
Tue, Dec. 2, 10:33 AM
- BofA Merrill Lynch downgrades the energy sector to Marketweight following OPEC’s decision to maintain rather than cut production, now seeing $70-$75 as Brent crude's 2015 range, while warning of value traps.
- "With the collapse in crude, the sector now trades at a 20% discount to the S&P 500, where it has historically traded in-line with the market," the firm says, "but further estimate cuts are likely to come, [as] prices are falling faster than earnings are deteriorating."
- Seeing WTI possibly falling as low as $50 in the coming month, BofA warns that "volatility in oil prices translates to volatility in earnings."
- For exposure to the sector, the firm prefers big, lower beta stocks such as Exxon Mobil (XOM +0.5%).
- Citi also cautions against assuming that oil prices have found a bottom, and wants to see a more thorough confirmation of a technical base of support before proclaiming anything more than the latest trading bottom; however, Citi's Scott Gruber recommends moving aggressively on oil services if WTI crude falls into the $50s - his top picks, in order, are Baker Hughes (BHI +0.1%), Halliburton (HAL -1.3%) and Weatherford (WFT +2.7%).
- ETFs: XLE, ERX, VDE, OIH, XOP, ERY, FCG, DIG, GASL, DUG, IYE, XES, IEO, IEZ, PXE, PXI, FENY, PXJ, RYE, FXN, DDG
Mon, Dec. 1, 12:21 PM
- Oil prices are rebounding, with both WTI and Brent crude up ~2%, but only a handful of energy stocks are rising.
- Exxon Mobil (XOM +1.4%) and Chevron (CVX +1.3%) are both up more than 1%, but the vast majority of energy stocks - led by Denbury Resources (DNR -8.9%), Newfield Exploration (NFX -7.6%) and Goodrich Petroleum (GDP -22.3%) - are seeing heavy selling.
- The SPDR Energy Select Sector ETF (XLE -1.2%) is lower despite gains in XOM and CVX, XLE’s two most heavily weighted stocks, as 38 of its 43 equity components trade lower; the ETF has now lost 7.5% since OPEC sent oil prices plunging by agreeing last Thursday not to cut production.
- Among XLE’s most actively traded components, Kinder Morgan (KMI -3.3%), Halliburton (HAL -3.4%), Transocean (RIG -6.1%) and Schlumberger (SLB -2.1%) are sharply lower.
- Other big decliners include BBEP -17.8%, SD -12.1%, SN -13%, CWEI -8.8%, CPE -14.6%, EXXI -18.9%, LRE -22.8%, REI -16.9%, SSE -15.3%.
- Other ETFs: ERX, VDE, OIH, XOP, ERY, DIG, DUG, IYE, XES, IEO, IEZ, PXE, FENY, PXJ, RYE, FXN, DDG
Mon, Dec. 1, 7:13 AM
- S&P 500 (NYSEARCA:SPY) futures are lower by 0.3%, and DJIA by 0.2% as oil - which continued to tumble in Sunday evening action, recoups some of that loss and is now down 0.8% at $65.60 per barrel. The XLE is off 1.8%.
- A sizable decline in the periphery is leading broader Europe moderately lower, and Hong Kong's 2.6% dive was the outlier in Asia overnight. Shanghai fell just 0.1% and the Nikkei climbed 0.8%.
- The 10-year Treasury yield is up one basis point at 2.18% and gold is down $2 per ounce to $1,172.
- ETFs: SPY, QQQ, DIA, SH, SSO, SDS, VOO, PSQ, IVV, SPXU, UPRO, TQQQ, SPXL, RSP, QID, SQQQ, DOG, QLD, DXD, RWL, EPS, UDOW, SDOW, DDM, BXUB, QQEW, QQQE, SPLX, BXUC, SFLA, QQXT, SPUU
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