After giving an impressive performance last year, global energy
stocks have been underperforming the broad market on falling oil
prices, rising global supply, and waning global demand. Notably,
energy has been the worst performing sector in the MSCI World Index
in the first month of the year.
Oil production in the U.S, the largest oil consumer, saw an
increase in production of 992,000 barrels a day in 2013. In fact,
the U.S. is expected to overtake Russia as the world's biggest
producer of oil within two years and become energy independent in
the next two decades (read:
Play the U.S. Oil Boom with These Energy ETFs
Despite the booming shale oil and gas business, U.S. oil giants are
seeing shrinking production volumes while operating costs are
rising. As such, energy has been the biggest laggard this earnings
season with 9.3% decline in earnings and 3.7% decline in revenues
This is particularly true given the disappointing fourth quarter
earnings from the U.S. oil giants -
Exxon Mobil (
Earnings for Big Oil Companies in Focus
Last week, the largest U.S. oil company, XOM, reported earnings of
$1.91 per share for the fourth quarter. Earnings were a penny ahead
of the Zacks Consensus Estimate, but fell 13.2% from the year-ago
quarter. Total revenue dropped 3.3% year over year to $110.9
billion, missing the Zacks Consensus Estimate of $114.9 billion.
The lackluster result was primarily due to lower oil and gas output
that dropped for the ninth time in the past 10 quarters as well as
rising cost for building new reserves (read:
3 Energy ETFs with a Choppy Start to 2014
Chevron, which trails XOM, was hit by higher costs, lower
production and lower margins at refineries in the fourth quarter.
Earnings per share came in at $2.57, falling short of the Zacks
Consensus Estimate by a penny, and 30.5% below the year-ago
earnings. Revenues fell 7% to $56.16 billion and were far from the
Zacks Consensus Estimate of $76.43 billion.
The sluggish performance from these two giants has definitely
impacted their share prices. Exxon Mobil lost more than 3% over the
past two trading sessions following the earnings announcement on
January 30. On the other hand, CVX lost over 4% on the day of its
earnings announcement (January 31).
This suggests rough trading in the next few days and coupled with
unfavorable macro fundamentals, investors must take great caution
while trading in these big oil companies. Further, both XOM and CVX
fall in the industry having a poor
Zacks Industry Rank
in the bottom 32%.
Moreover, both the stocks retain a Zacks Rank #3 (Hold), indicating
that the short-term outlook does not look so bad and they are
expected to perform with the broader markets (read:
3 Top Ranked ETFs That Will Crush the Market in
The plunge also impacted the ETF world, as most of the funds that
have larger allocations to these oil companies are trending down
over the past five days. Below, we have highlighted three ETFs that
could be in focus in the coming days as well.
Investors should closely monitor the movement in these funds and
grab any opportunity from a surge in the price, or avoid them if
the oil giants look to have more weakness in the weeks ahead (see:
all the energy ETFs here
iShares U.S. Energy ETF (
This ETF tracks the Dow Jones U.S. Oil & Gas Index, giving
investors exposure to the broad energy space. The fund holds 84
stocks in its basket with AUM of about $1.6 billion and average
daily volume of more than 466,000 shares. The product charges 45
bps in fees per year from investors.
Exxon Mobil and Chevron occupy the top two positions in the basket
and take big chunks of the assets at 23.08% and 12.59%,
respectively. From a sector perspective, oil & gas producers
make up for three-fourths share while oil equipment, services and
distribution takes the remainder. The fund lost 1.44% over the past
five days and has a Zacks ETF Rank of 4 or 'Sell' rating with a
'Low' risk outlook.
Fidelity MSCI Energy Index ETF (
This is the newest addition in the energy space having accumulated
$30.6 million in its asset base since its debut three months ago.
The fund follows the MSCI USA IMI Energy Index, holding 160 stocks
in its basket. Out of these, XOM and CVX take the top two spots at
22.40% and 11.91%, respectively.
In terms of industrial exposure, oil, gas & consumable fuels
accounts for nearly 80% of the portfolio while energy equipment
& services take the remainder. The product is the low cost
choice in the energy space, charging just 12 bps in annual fees.
Volume is light, trading 38,000 shares a day. The ETF is down 1.5%
over the last five trading sessions (read:
Inside Fidelity's New Low Cost Sector ETF
Vanguard Energy ETF (
This fund manages a $2.5 billion asset base and provides exposure
to a basket of 162 energy stocks by tracking the MSCI US Investable
Market Energy 25/50 Index. The product sees good volume of more
than 112,000 shares and charges 14 bps in annual fees.
Again here, XOM and CVX are the top two firms with 23% and 12.5%
allocation, respectively. Though the product is skewed toward the
integrated oil & gas sector with 40.8% of assets, exploration
and production, and equipment services provide a nice mix in the
portfolio. VDE lost 1.3% in the past five days and has a Zacks ETF
Rank of 3 or 'Hold' rating with a 'Low' risk outlook.
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CHEVRON CORP (CVX): Free Stock Analysis Report
FID-ENERGY (FENY): ETF Research Reports
ISHARS-US EGY (IYE): ETF Research Reports
VIPERS-ENERGY (VDE): ETF Research Reports
EXXON MOBIL CRP (XOM): Free Stock Analysis
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