The energy sector’s status as the worst-performing sector in the S&P 500 this year has long since been cemented, leaving advisors and investors to ponder if the seventh-largest sector weight in the S&P 500 has better things in store for 2016.
Down about 19% this year, the Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, could use some relief. XLE has struggled this year as Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), the two largest U.S. oil companies, have ranked as two of the worst–performing stocks in the Dow Jones Industrial Average.
Since those stocks combine for a third of XLE’s weight, the ETF and its rivals could use some help from either Exxon, Chevron or both to deliver improved returns in 2016. Some analysts think Chevron, the second-largest U.S. oil company, offers significant upside and that could prove to be good news for XLE.
California-based Chevron “is Cowen analyst Sam Margolin’s top pick for 2016, he told CNBC on Tuesday. The firm has a $122 target on shares of Chevron, a 34 percent premium to the current price at just above $91. The average price target on the stock is $99.32, according to FactSet,” reports CNBC.
With oil prices recently hitting 11-year lows, oil companies have been cutting back on expanding projects, which have hurt the explorers and producers space. Meanwhile, the depressed prices have weighed heavily on unconventional oil producers, like the nascent shale oil industry, which have much higher overhead costs that require higher prices to break even.