Regarding Cimarex, Devon and Pioneers, “all three of these stocks are priced at least 20% above their 5-year historical forward averages on either forward EBITDA or forward cash flows, and are at least flat or better than peers for stock performance year to date. XEC is up 11%, DVN is up 1%, and PXD is down 5%, versus a peer average that is down5%. We think current valuation premiums suggest that the market is embedding a return to rosier pricing, and we are less optimistic on this front. With stocks seemingly factoring in this kind of upward pricing traction, we advise investors to be cautious with these names,” according to S&P Capital IQ.
Mean reversion or simple departures from those names could hurt IEO and rival ETFs, such as the Market Vectors Unconventional Oil & Gas ETF (NYSEArca: FRAK), which includes North American hydraulic fracturing companies. FRAK allocates a combined 12.2% of its weight Devon, Pioneer and Cimarex.
S&P Capital IQ has underweight ratings on IEO and FRAK, though the latter has been relatively sturdy in recent weeks, losing just half a percent over the past 90 days.
Market Vectors Unconventional Oil & Gas ETF