The energy sector has been performing remarkably well this year,
especially following the geopolitical tensions in Russia, and is
clearly outpacing the broad market indices. Further, the current
demand/supply dynamics suggest higher
, and in turn soaring prices for energy stocks and the related
Russia Threatens Oil Supply
The situation in Russia is getting worse as the Ukrainian regime
calls for military buildup against Russia on one hand, and the U.S.
and European Union are looking for more tough sanctions against the
country on the other if the crisis escalates further. This is
especially true given that at least three pro-Russian militants
were killed in the gun battle near the volatile eastern Ukrainian
town of Slavyansk on Sunday (read:
3 Commodity ETFs Surging on Russia Sanctions
Since Russia is a huge supplier of both natural gas and oil,
Western Europe and other markets are heavily dependent on Russian
production to fuel their economies. If the crisis escalates or
European Union hits Russia with more sanctions then the latter
could keep European markets away from its vast oil and natural gas
supplies. This will result in higher oil prices, pushing Western
Europe in search of other markets to meet their energy needs.
Encouraging Demand/Supply Trends
Though oil production in the U.S., the largest oil consumer,
reached its highest levels in 24 years thanks to new hydraulic
fracturing (fracking) methods and a boom in unconventional oil
production, output in other countries is showing signs of waning.
The civil unrest and operational issues in Libya and Iraq, reduced
supplies in Saudi Arabia, and repairs and maintenance in Kazakhstan
oil fields would take a toll on total oil supply going forward in
addition to Russia's reduced output.
As a result, non-OPEC supply is expected to fall by
0.25 million barrels per day
this year to 29.8 million barrels per day, as per the International
Energy Agency (IEA). The agency also expects global demand to rise
to 92.7 million barrels per day this year. Most of the demand is
expected to come from volatile emerging markets.
Moreover, the oil and energy industry currently has a Zacks
Industry Rank in the top 38%, suggesting a bullish outlook for the
broad sector. So the overall sector is looking quite promising at
present, especially given some of the weakness in many of the
high-flying names in other key sectors such as biotech and
The Momentum Stock Crash Puts These ETFs in
Fortunately, there are a few top ranked picks in this corner of the
market, and we have described some below. Any of these could enjoy
smooth trading and lead the market higher in Q2:
Top Energy ETFs
iShares U.S. Oil & Gas Exploration & Production ETF
This ETF tracks the Dow Jones U.S. Select Oil Exploration &
Production Index and holds 77 securities in its basket. The fund
has $468.6 million in its AUM and trades in good volume of nearly
111,000 shares per day. It charges 46 bps in annual fees and
Energy Exploration ETFs: A Bright Spot in The
The product is heavily concentrated on the top firm -
) - at 12.9% while EOG Resources (
), Anadarko Petroleum (
) and Phillips 66 (
) round off to the next three spots with combined 21.5% of assets.
In terms of industrial exposure, exploration and production takes
the top position at 70.60% while integrated oil & gas takes the
The fund added about 10% so far this year and has a Zacks ETF Rank
of 1 or 'Strong Buy' rating with a 'High' risk outlook.
PowerShares DWA Energy Momentum Portfolio (
This fund provides exposure to 34 energy stocks having positive
relative strength (momentum) characteristics by tracking the DWA
Energy Technical Leaders Index. It has accumulated $203 million in
its asset base and trades in small volume of about 24,000 shares
per day. Expense ratio came in at 0.66%.
The ETF is somewhat concentrated on the top 10 holdings at over 44%
with the largest allocation going to Cheniere Energy (
) and Continental Resources (
). From a sector look, three-fourths of the portfolio is tilted
toward oil, gas & consumable fuels while energy, equipment and
services make up for the remainder.
PXI is up 8.6% in the year-to-date time frame and has a Zacks ETF
Rank of 2 or 'Buy' rating with a 'High' risk outlook (see:
all the energy ETFs here
Top Energy Stocks:
Sprague Resources LP (
Investors looking for a concentrated play on a particular company
in the energy industry could consider SRLP. This company is one of
the largest independent suppliers of energy and materials handling
services in the Northeast. Its products include home heating oil,
diesel fuels, residual fuels, gasoline and natural gas.
SRLP has seen solid earnings estimate revisions for both the
current quarter and the current year over the past month as about
more than 50% of the analysts revised their estimates upward. In
fact, over the past one month, the consensus estimate for the
current quarter has risen from 4 cents per share to 6 cents per
share while the current year estimates climbed from $1.47 per share
to $1.61 per share. This suggests that a bright future is ahead for
Sprague currently has a Zacks Rank #2 (Buy), meaning it could be
primed for more growth in the months ahead.
Targa Resources Corp. (
For a slightly different play on the energy segment, investors
should consider TRGP. This company primarily supplies midstream
natural gas and natural gas liquid services in the United States.
TRGP has also seen rising earnings estimates with about 40% of the
analysts increasing earnings estimate for the current quarter and
the current year over the past 30 days. The consensus estimate for
the current quarter and current year stood at 61 cents and $2.71
per share, respectively (read:
3 Oil ETFs Stand Out on Russian Tensions
This is up from 56 cents for the current quarter and $2.25 per
share for the current year over the last 30 days. Further, the
estimates represent a whopping year-over-year growth of 69.4% and
74.7% for this quarter and the year, respectively. This suggests
the company's incredible potential to grow in the coming months.
Further, Targa currently has a Zacks Rank #2 (Buy), underscoring
the company's solid position.
Markets have been choppy of late as soft global economic
fundamentals, stretched valuations and earnings warnings dampened
investor mood. In light of this, it might be time to focus on a
sector that is seeing rising earnings estimates, and is well
positioned to benefit from the current geopolitical pressures
3 Low Risk ETFs for Market Turmoil
Energy companies certainly poised to benefit from this scenario and
any of the aforementioned picks could be solid choices to play this
trend given the uncertain market environment.
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ISHARS-US O&G (IEO): ETF Research Reports
PWRSH-DW EGY MO (PXI): ETF Research Reports
SPRAGUE RESRCS (SRLP): Free Stock Analysis
TARGA RESOURCES (TRGP): Free Stock Analysis
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