Sector Still Has Plenty Of Energy

9/7/2009


You’d never know it by looking at the S&P 1500 Energy Sector Index, but most energy stocks are doing fine this year.

The index had risen just 1% as of Sept. 1, well below the gains of most market sectors. However, the average S&P 1500 energy stock is up 21%.

How do we reconcile those numbers? Consider two key facts about the energy sector:

First, seven integrated oil companies represent 58% of the energy index’s stock-market value. Those seven companies average year-to-date price gains of 2%. Four of the seven, including the three largest, have declined this year. Poor performance from the largest oil companies weighs on the capitalization-weighted index, offsetting strong moves from many smaller stocks.

Second, oil prices have rallied sharply in recent months. The current spot price of $69.97 per barrel is up 79% from the February average price of $39.09 per barrel. Natural-gas prices have not shared in the fun, but oil is more important to the sector, and energy stocks tend to rise when oil prices increase. Natural-gas use is growing rapidly, but it accounted for about one-fourth of global energy consumption last year.

In the following paragraphs, we present four reasons for continued optimism about select energy stocks:

On average, energy companies in the S&P 1500 Index earn a Quadrix® Overall score of 60. The equipment & services and drilling industries, home to our top energy picks, average even higher scores. The Forecasts currently recommends six energy stocks for purchase, all of which are listed in the table below.

FORECASTS ENERGY STOCKS
– Sector Scores * –
Company
(Price; Ticker)
Mkt.
Value
($Bil.)
Div.
Yield
(%)
Quadrix
Overall
Score *
12-Factor
Sector
Reranked
Overall
Oil & Gas
Industry
Advice
Anadarko
($53; APC)
25.9
0.7
67
44
44
Expl. &
Prod.
Neutral
Apache
($83; APA)
28.0
0.7
32
13
20
Expl. &
Prod.
Neutral
BP ($50; BP)
158.6
6.7
69
39
54
Integrated
Neutral
Chevron
($68; CVX)
137.3
4.0
61
62
47
Integrated
LT Buy
ConocoPhillips ($44; COP)
65.5
4.3
31
23
29
Integrated
Neutral
ENSCO Int’l
($36; ESV)
5.1
0.3
90
82
90
Drilling
Neutral
Exxon Mobil
($68; XOM)
328.8
2.5
57
51
41
Integrated
LT Buy
Halliburton
($24; HAL)
21.2
1.5
73
40
53
Equip. &
Svcs.
Neutral
Nabors Indust.
($17; NBR)
4.9
0.0
51
18
36
Drilling
Neutral
National Oilwell
($36; NOV)
14.9
0.0
94
72
97
Equip. &
Svcs.
Buy †
Oceaneering Int’l
($52; OII)
2.8
0.0
92
59
76
Equip. &
Svcs.
Focus
Buy
Schlumberger
($55; SLB)
65.8
1.5
83
46
62
Equip. &
Svcs.
LT Buy
Transocean
($75; RIG)
24.1
0.0
86
94
92
Drilling
Focus
Buy †
Valero Energy
($18; VLO)
10.3
3.3
22
14
24
Refin. &
Mktg.
Neutral
† Also qualifies as a Long-Term Buy.      * Quadrix scores are percentile ranks, with 100 the best. The 12-Factor Sector and Reranked Overall scores are designed to rank energy stocks relative to other energy stocks.

The futures market projects oil prices will rise gradually over the next year and reach $75 per barrel in late 2010. Futures prices reflect a 99% rise in natural-gas prices by the end of this year, with another 39% growth in 2010. Higher oil and gas prices are a positive for most energy stocks.

More than 60% of the S&P 500 Index’s 39 energy stocks saw consensus profit estimates for the next fiscal year rise over the last eight weeks. This momentum suggests analysts are becoming more confident about the sustainability of higher oil
prices.

Recent results from Oceaneering International ($52; OII) and other oilfield suppliers suggest spending on exploration and production remains decent, particularly for deepwater projects. All three of our Buy-rated energy stocks have substantial interests in deepwater production.

INDUSTRY ANALYSIS
Company count and market value represent totals for industry groups; all other numbers are group averages. Quadrix 12-Factor Sector and Reranked Overall scores are designed to rank energy stocks relative to other energy stocks.
— Market Value —
— 12-Month Chg. —
— Price Change —
—— Sector Scores ——
Industry (Company Count)
Billions
($)
% Of
Sector
Div.
Yield
(%)
Trailing
P/E
Sales
(%)
Operating
EPS
(%)
YTD
(%)
12
Months
(%)
Quadrix
Overall
Score
12-
Factor
Sector
Reranked
Overall
Coal & Consumable
Fuels (5)
21
2
1.0
12
27
20
41
(57)
83
77
77
Drilling (10)
38
3
0.3
7
3
(5)
38
(40)
73
59
66
Equipment &
Supplies (27)
156
14
0.5
12
4
(11)
26
(43)
67
50
58
Exploration &
Production (27)
201
18
0.4
16
(5)
(13)
21
(37)
44
36
29
Integrated Oil & Gas (7)
638
58
2.6
11
(21)
(29)
2
(26)
56
54
43
Refining & Marketing (6)
19
2
2.7
7
(24)
(16)
(2)
(16)
61
70
59
Storage &
Transportation (4)
28
3
3.9
10
(4)
15
6
(41)
68
36
53
S&P 1500 Energy
Sector (86)
1,102
100
1.0
12
(2)
(9)
21
(38)
60
50
50
Notes: Quadrix scores are percentile ranks, with 100 the best. Averages exclude P/E ratios below 0 or over 75 and growth rates of more than 100%.

 


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