With the energy sector now residing as the worst performer of the 10 sectors tracked by the S&P 500, the group’s stocks and exchange traded funds could use some good news. Next week’s mid-term elections could bring just that.
If, as expected, the Republicans maintain control of the House and seize a Senate majority, the much maligned Keystone XL oil sands pipeline project could be back in play. Keystone XL, which one Democratic senator compared to Kim Kardashian, and it was not a complement, has been opposed by most by Democrats.
As is the case with some other industry ETFs, a rally could ensue for select energy ETFs if the Republicans are successful in capturing a Senate majority. [Pre-Election Rally for Medical Device ETFs]
The Energy Select Sector SPDR (NYSEArca: XLE) is off 13.4% over the past 90 days and is the only one of the nine sector SPDR ETFs to be lower on a year-to-date basis. However, the ETF makes for a predictable beneficiary of any positive news related to the Keystone pipeline.
ConocoPhillips (NYSE: COP), the largest U.S. independent oil and gas producer, and Valero (NYSE: VLO) are among the XLE holdings that stand to benefit if Keystone comes to fruition. Those stocks combine for nearly 5% of XLE’s weight.
“Due to ongoing discussions surrounding the US/Canada Keystone Pipeline, the midterm elections could have tremendous impact on energy companies as well. The controversial pipeline, which transports crude oil from Alberta to North American ports, has been under construction since 2008. Its next and final phase, the Keystone XL Pipeline (“XL”), is under attack from environmentalists due to potential pollution, ground water contamination, and other issues stemming from XL’s path through Nebraska,” said State Street Vice President and Head of Research Dave Mazza in a new research note.
Exxon Mobil (NYSE: XOM), the largest U.S. oil company and XLE’s largest holding at a weight of 16.2%, has also been highlighted as a potential Keystone winner.
The SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES), the equal-weight alternative among oil services ETFs, could also benefit as Keystone would likely lead to increased spending on oil services.
Not only are oil services stock currently discounted on valuation after the recent glum price action in the group, XES is home to several companies that have been previously mentioned as takeover targets, including, Weatherford (NYSE: WFT), Tidewater (NYSE: TDW), Dril-Quip (NYSE: DRQ) and McDermott International (NYSE: MDR). [Oil Services ETFs Could be Bargains]
“The completion of XL would be broadly positive for energy companies and energy-rich states. XL has Republican support, but it may face a Presidential veto if overall Congressional support is tepid. As a result, if Republicans win both houses of Congress, XL’s path to completion becomes easier and much more likely. There could also be an undercurrent of Democratic support in energy-producing states, which could facilitate overturning a Presidential veto if necessary,” adds Mazza.
SPDR Oil & Gas Equipment & Services ETF
