Soaring Halliburton Stock Puts These Energy ETFs in Focus - ETF News And Commentary


Halliburton Co . ( HAL ) - the world's second-largest oil-field-services provider - has been defying gravity this year and has provided outstanding returns, easily beating the largest player in this field, Schlumberger Limited ( SLB ) as well as the broader US markets.

Increased investments in the energy sector, innovative technology launches and higher activity in the international markets are some of the factors driving revenues and profits and in turn their share prices for companies in this space. Halliburton has returned a solid 42% since the start of the year, roughly six times the returns generated by the S&P 500.

Apart from improving fundamentals, rising geopolitical tensions, first from Russia and Crimea and now in Iraq, have pushed oil prices higher and Halliburton's share price northward too (read: 3 Energy ETFs to Watch on Iraq Turmoil ).

Behind the Soaring Share Prices

The company enjoys a strong competitive position within the global oilfield services markets and offers a variety of equipment, maintenance, and engineering and construction services to the energy, industrial, and government sectors. Last year, the company delivered record results in the majority of its product categories.

Halliburton has been consistently beating earnings expectations for the past four consecutive quarters and has generated decent cash flow from operations (read: 3 Energy ETFs to Watch After Oil Service Stock Earnings )

The company's strong first-quarter 2014 results were mainly driven by improved stimulation work in the U.S., higher activity in the international markets and increased profits from its pressure pumping business in Argentina.

Moreover, the company is expected to be one of the biggest beneficiaries of the recovering North American Pumping market, according to an article by Forbes .

Increasing unconventional activity in the United States, new hydraulic fracturing (fracking) methods, higher natural gas prices this year and some of the company's initiatives to improve operational efficiencies are expected to be the biggest drivers for this.

Furthermore, the company is expected to greatly benefit from the global energy boom. Halliburton is expected to receive million dollar contracts from foreign companies looking to drill more oil and gas, modernize their equipment and operate more efficiently, as per a Wall Street daily article .

And last but not least, high barriers to entry in the oil services business is icing on the cake. The sector is quite sheltered from competition from new entrants due to huge capital expenditure requirements (read: Play the U.S. Oil Boom with These Energy ETFs ).

Energy Equities ETFs in Focus

Thanks to the massive surge in prices of Halliburton since the start of the year, energy ETFs having high exposure levels to the company have also performed quite well so far.

Below we have highlighted two ETFs having double-digit allocations to the company, which investors will do well to keep on their watch list. This pair might continue to move higher, if Halliburton manages to deliver good second quarter results (which are slated for release on the 21 st this month), or if the trends that pushed HAL higher can trickle down into the rest of the space as well:

Market Vectors Oil Services ETF ( OIH )

OIH tracks the Market Vectors US Listed Oil Services 25 Index, managing an asset base of $1.5 billion.

The fund holds a basket of 26 stocks, with Halliburton having the second largest exposure (12.65%). Schlumberger Ltd occupies the top spot having 20% exposure in the fund.

The fund is quite cheap and charges 35 basis points annually and sees pretty average good trading volumes of roughly 2.6 million shares a day. The ETF has returned a solid 36.5% in the past one year and 21% since the start of the year.

iShares U.S. Oil Equipment & Services ETF ( IEZ )

IEZ offers exposure to U.S. companies that provide equipment and services for oil exploration and extraction by tracking the Dow Jones U.S. Select Oil Equipment & Services Index.

This focus results in a fund holding 52 stocks, with Schlumberger Ltd. topping the list with 22.4% exposure, followed by Halliburton with 10.4% (see: all the energy ETFs here ).

The fund is slightly more expensive than OIH charging 46 basis points as fees. IEZ has returned a little less than 38% in the past one year and 28% since the start of the year.

Bottom Line

Though improved automobile fuel efficiency, new hydraulic fracking methods, a boom in unconventional oil production, a recovering market for pressure pumping services in North America and geo-political tension in oil producing nations are driving the above ETFs higher, we nonetheless advise investors to take a more cautious view going forward.

Factors like increased pricing pressure, oversupply in the pressure pumping business and pricey valuation concerns are expected to act as dampeners. As such, we currently have a Zacks ETF Rank #4 or Sell rating on the above funds, so while the short term picture may be bright there is definitely reason to be caution for the long term outlook.

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HALLIBURTON CO (HAL): Free Stock Analysis Report

MKT VEC-OIL SVC (OIH): ETF Research Reports

ISHARS-US OIL E (IEZ): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: HAL , OIH , IEZ

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