This year, energy stocks and the related exchange traded funds aren’t delivering the scintillating performances that were seen in 2021 and 2022. But the sector is higher on the year, albeit in a modest fashion. Oil demand is steady and there’s still value in a sector often associated with being a prime value destination. Take the case of the Invesco S&P 500 Equal Weight Energy ETF (RSPG). More than 51% of its 24 holdings are classified as value stocks.
Even when stripping the value factor out of the equation, some catalysts could boost RSPG in the second half. That’s worth noting. Because as of August 9, RSPG is beating its largest cap-weighted rival by a better than 2-to-1 margin on a year-to-date basis.
Oil Service Stocks Could Propel RSPG
When it comes to broad views of the energy sector, many investors typically focus on integrated oil giants, such as Chevron (NYSE: CVX) and Exxon Mobil (NYSE: XOM), or exploration and production companies. Some market participants gloss over oil services providers, the picks and shovels side of the energy sector.
The importance of oil services equities in the broader energy investment thesis is pertinent to investors evaluating RSPG because the equal-weight ETF allocates 14.10% of its roster to oil services stocks – some of which could offer upside in the months ahead.
“One of the key themes that we highlighted throughout 2023 is the importance of idiosyncratic self-help drivers. We believe there are a number of attractive buy-rated stocks that can drive sequential growth, margin expansion, and multiple expansion even in a range-bound commodity environment with Brent near $80/bbl,” wrote Goldman Sachs analyst Ati Modak in a recent report to clients.
The analyst’s preferred picks among oil services providers include Baker Hughes (NASDAQ: BKR) and Schlumberger (NYSE: SLB). That duo represents two of the largest names in the industry and combines for about 9% of the RSPG portfolio.
Goldman’s Modak cites rising spending among oil-rich Middle East nations that are looking to capitalize on high oil prices as a catalyst for Schlumberger while pointing to “improved free cashflow conversion and better transparency” as positives for Baker Hughes.
The analyst has “buy” ratings on several other oil service or equipment names, including Halliburton (NYSE: HAL). Halliburton is tied with Schlumberger as RSPG’s third-largest holding with both stocks commanding 4.76% of the fund’s roster.
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