Energy companies were largest contributor to the earnings decline for the S&P 500 in the third quarter, the stabilizing crude oil prices and potential production cutbacks from major oil producers could help support sector-related exchange traded funds.
Oil services ETFs, such as the VanEck Vectors Oil Service ETF (NYSEArca: OIH) and the SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES), have also been solid performers and have earnings upside surprise potential.
Earlier this month, Credit Suisse upgraded several oil services providers, including some of the names found in OIH, the largest oil services ETF, and XES.
“Cash flow and free cash flow should also be a positive story for the sector. Don’t forget it was Q1 ’16, where basically the profits for the entire energy sector were wiped out, with the drop in crude oil from $40 in November ’15 to $28 by mid-January ’16; so the sector should see a few quarters of potential outperformance relative to the rest of the market,” notes Seeking Alpha.
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