Stewart Glickman, S&P Capital IQ energy analyst, “also thinks the market also currently values production not returns. Yet, he contends the two largest companies in the sector, Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) are production growth-challenged. Because they are so large and joined the U.S. onshore shale revolution late, they are hard pressed to generate sufficient growth. However, both these stocks offer above-average dividend yields. Indeed, the sector has an average 2.5% dividend yield that is higher than the S&P 500,” said the research firm.
S&P Capital IQ rates Exxon, the largest U.S. oil company, three stars and has a four-star rating on Chevron. Despite its less-than-rosy view of the energy sector, S&P rates the Energy Select Sector SPDR (NYSEArca: XLE) overweight.
XLE, the largest energy ETF, allocates 29% of its combined weight to Exxon and Chevron. If there is a silver lining for the energy sector it is that valuations are falling, too. Currently, XLE is trading at a 14.7 price-to-earnings ratio and a 1.9 price-to-book ratio while the S&P 500 index is hovering around a 17.1 P/E and a 2.4 P/B. [Value in Energy ETFs]
Energy Select Sector SPDR
