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 Energy names have been the best-performing sector in the S&P 500
since February 25 when the selloff in high-growth stocks began. The
sector will look to build on recent gains when bellwethers Exxon
Mobil Corp <XOM.N>, Chevron Corp <CVX.N> and ConocoPhillips <COP.N>
report results next week.
The rotation to value has limited the broader market's selloff. That
could continue: Morgan Stanley said in a recent note that strong
rotations to value names are usually followed by longer periods of
value leadership.
Energy sector funds have attracted inflows in nine of the past 10
weeks; flows have averaged $488.9 million weekly over the last four
weeks, the most since March 2011, according to Lipper, a Thomson
Reuters company.
On a total return basis, energy <.TRGSPE> is up more than 7 percent
since February 25, compared with a gain of just over 2 percent for
the S&P 500 <.TRGSPC> and a loss of 1.8 percent on healthcare <.TRGSPA>,
the worst-performing sector in that period.
"These big energy companies that pay dividends and have solid
buyback programs are more defensive in nature as long as the price
of the underlying commodity holds up," said Mike O'Rourke, chief
market strategist at JonesTrading in Greenwich, Connecticut.
Both Exxon and Chevron rank among the top 10 dividend payers in
terms of absolute dollars, according to S&P Dow Jones Indices. With
a price-to-earnings ratio of 14.2, significantly below the S&P 500's
17.8, energy should continue to attract investors as the rotation to
value continues.
"A lot of the major oil companies are entering the next phase of
their life cycle, where there's more of an emphasis on profitability
and cost control," said Faisel Khan, senior oil equity analyst at
Citi in New York.
"We think that returns have a pretty good chance of growing from
here."
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Halliburton Co <HAL.N>, the world's No.2 oilfield services provider,
said earlier this week that their customers are stepping up spending
to drill and complete wells as operating budgets swell. Schlumberger
Ltd <SLB.N> and Baker Hughes Inc <BHI.N> also spoke of improved
markets in North America.
According to the U.S. Federal Reserve, capacity utilization in the
oil extraction sector currently sits at 99.2 percent of total
capacity, far exceeding the average over the previous 40 years of
about 92 percent.
So far in this earnings period, 14 energy names have reported
results, with 11 — or 79 percent — exceeding estimates, making
energy No. 1 among sectors with more than 10 companies reporting.
"With investors generally underweight Big Oils, there are early
signs that significant negative consensus EPS revisions are likely
leveling off," said Asit Sen, an analyst at Cowen & Co, referring to
earnings per share estimates in a note this week.
(Reporting by Rodrigo Campos; editing by Jan Paschal)
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