Broadly speaking, energy stocks and the corresponding
have performed well through the first two months of 2013.
As just one example, the Energy Select Sector SPDR (NYSE:
), the largest energy ETF by assets, is up nine percent to start
More upside for the sector could still be in store as U.S.
integrated oil names currently sport attractive valuations,
strong balance sheets and solid cash flow.
U.S. oil companies are also benefiting North American oil
growth, according to S&P Capital IQ, prompting the research
firm to have a positive fundamental outlook on the oil and gas
sub-sector for the next 12 months.
"This also reflects our strong long-term outlook for energy
demand and the growing importance of North American oil
production," said S&P Capital IQ in a research note. "We
think the integrateds exhibit low debt levels, strong cash
positions, superior earnings, cash flow and dividend quality, and
The research firm also notes major integrateds are beginning
to benefit major deep water investments and non-conventional
sources, such as shale formations.
"Many large supermajor oils are now highlighting onshore North
America assets to convey future growth stories," the firm said in
Among integrated oil names, S&P Capital IQ has five-star
ratings on Dow components Exxon Mobil (NYSE:
) and Chevron (NYSE:
), the two largest U.S. oil companies. S&P has a four-star
rating on Occidental Petroleum (NYSE:
), the fourth-largest U.S. oil company.
Exxon and Chevron combine for over 32 percent of the Energy
Select Sector SPDR, which S&P Capital IQ has an Overweight
rating on. Occidental is XLE's fourth-largest holding with a
weight of nearly 3.8 percent. Overall, XLE is home to 45 stocks.
has over $7.4 billion in assets under
and an expense ratio of 0.18 percent.
S&P also holds a favorable outlook on select independent
exploration and production companies, with a preference for the
large-cap names in that group.
"S&P Capital IQ Equity Research also maintains a positive
fundamental outlook on the independent oil & gas exploration
& production (E&P) sub-industry, but remains more heavily
weighted toward the large-cap companies with oil exposure," the
research firm said . "We believe these companies carry less risk
on their balance sheets and exhibit more conservative spending
habits than smaller peers, where funding could become an issue as
U.S. natural gas prices remain depressed."
S&P has a five-star rating on Apache (NYSE:
) and four-star ratings on rival independents ConocoPhillips
), Anadarko Petroleum (NYSE:
) and EOG Resources (NYSE:
ConocoPhillips, Anadarko and EOG are top-10 holdings in the
iShares Dow Jones U.S. Energy Sector Index Fund (NYSE:
), which S&P also rates Overweight. IYE, which also allocates
over 28 percent of its combined weight to Exxon and Chevron, is
up 8.6 percent year-to-date. Those three stocks are also top-10
holdings in XLE. Apache is found in both ETFs as well, though
further down the roster.
Another ETF for investors that want exploration and production
exposure to consider is the smaller iShares Dow Jones U.S. Oil
& Gas Exploration & Production Index Fund (NYSE:
). That ETF was not highlighted in the S&P note, but
Occidental, Anadarko, EOG and Apache are four of IEO's top-five
In fact, those stocks combine for over 34 percent of IEO's
weight. The $324.1 million ETF is up 11 percent year-to-date.
For more on ETFs, click
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