Why Energy ETFs Have Upside Potential

The Energy Select Sector SPDR ETF (NYSEArca: XLE) is the worst performer among the nine established sector SPDR exchange traded funds this year, but that is not stopping some market observers from calling for upside for energy stocks and ETFs.

XLE’s October resurgence came as investors digested what was a batch of predictably dire earnings reports from the energy sector. Heading into the start of third-quarter earnings season, some market observers predicted energy sector earnings would contract as much as 60%, the worst contraction of any S&P 500 sector.

Ongoing struggles for XLE and rival energy ETFs are prompting some market observers to wave the white flag when it comes to forecasting what’s next in the energy patch.

Some institutional investors are steering clear of energy stocks, but at least one exchange traded funds strategist is embracing beaten-up energy sector ETFs. However, that could portend opportunity with XLE.

Profit expectations have fallen dramatically which in turn has pushed the sector’s P/E ratio much higher even as stock prices have declined, though P/Es have come off their highs and estimates appear to have stabilized,” according to AltaVista. [Oil ETF Dividends Appear Safe…Sort Of]