If buying when there is blood in the streets really works, and history shows that it has on numerous occasions, then the energy sector is currently worth a gander.
The energy sector was the only one of the 10 S&P 500 sectors to decline last month, meaning the Energy Select Sector SPDR (NYSEArca: XLE) was the only one of the nine sector SPDR ETFs to end November in the red. XLE, the largest equity-based energy ETF, lost nearly 9% in November while the S&P 500 jumped 4.4%.
With some market observers saying oil futures could slide to $55 per barrel (or further), making bullish calls on XLE and energy stocks has not exactly been the order of the day, but some analysts see opportunity with the ETF.
AltaVista Research, which researches close to 900 ETFs, has an overweight rating on XLE, making the goliath energy fund the only one of the nine sector SPDRs AltaVista currently rates as overweight.
AltaVista’s overweight rating implies above average appreciation potential. “Typically, funds in this category consist of stocks trading at attractive valuations and/or having above-average fundamentals,” according to AltaVista.
That view likely counters that many investors have of XLE and energy stocks at a time when the ETF’s marquee holdings are sliding and the fund’s technical look dubious. Over the past month, Kinder Morgan (NYSE: KMI) is the only of XLE’s top-10 holdings, a group that combines for over 60% of the ETF’s weight, that has traded higher. [A Critical Time for a Big Energy ETF]
Of course, the upside of XLE’s recent downside is favorable valuations have emerged, a potentially rewarding catalyst at a time when investors continue favoring value sectors.
“Profit expectations have been deteriorating rapidly as oil prices have fallen, and OPEC’s recent decision to maintain production levels is confirmation that larger supplies from America’s shale oil & gas revolution means lower energy prices–great for consumers but a threat to the long-term profitability of Energy firms. The Energy sector appears attractive in terms of valuation, but momentum isn’t currently in the sector’s favor,” said AltaVista.
The bullish view of XLE comes at a time when the ETF is usually known for strong performances. Though this December could easily be different, XLE has historically been the second-best of the nine sector SPDRs in December dating back to 1999, trailing only the Materials Select Sector SPDR (NYSEArca: XLB). [Best Sector ETFs for December]
AltaVista estimates XLE’s 2015 P/E ratio at 13.7 with a price-to-cash flow ratio of 6.2.
Energy Select Sector SPDR
