The Energy Select Sector SPDR (NYSEArca: XLE) is up 3.5% year-to-date, ranking third among the nine sector SPDR exchange traded funds. That is a clear improvement from 2014 when XLE, the largest equity-based energy ETF by assets, lost 8.7% and was the only one of the nine SPDRs to finish the year in the red.
Even with last year’s struggles, the energy sector is still expensive on valuation and perhaps even more so when considering the dismal profit and revenue expectations for the group.
“Forward revenues is at a six-year low, and forward earnings is at an 11-year low. Both are also down the most among the 10 S&P 500 sectors over the past month, three months, and six months. For the next 12 months, forward revenues is expected to fall 18.6%, and forward earnings is expected to decline 40.1%–lowest among the 10 sectors and the only sector with negative readings. Analysts expect annual earnings to fall 58.0% in 2015 after rising 1.0% in 2014,” according to a note published by Yardeni Research today.
However, market calls are still just predictions. In the end, actual results could surprise and look much better than expectations, potentially providing further momentum in a sideways trading market. That says there could be a contrarian opportunity afoot with energy stocks and ETFs like XLE. [Energy ETFs as Contrarian Plays]
Wells Fargo Advantage Funds Chief Portfolio Strategist Brian Jacobsen also believes that the energy sector could produce positive earnings surprises ahead as strategists anticipate a 63% contraction in first-quarter earnings for S&P 500 energy stocks, reports Julie Verhage for Bloomberg. Additionally, some market observers view XLE’s recent outperformance of the S&P 500 as a positive for energy stocks going forward. [Obscure Ratio Could b Good News for Energy ETFs]