As earnings numbers continue to pour in, we are entering a week loaded with energy company reports. This week features several important energy stocks, including big names such as Exxon Mobil Corporation (XOM - Analyst Report), Chevron Corporation (CVX - Analyst Report) and ConocoPhillips (COP - Analyst Report). Incidentally, this is also a time when the market is undergoing a periodic churn with energy stocks coming out on top.
Valuations in Focus
The recent slide in technology and biotechnology companies has proved that value stocks are once again in vogue. There has been a discernable market movement from value stocks towards growth choices.
Value stocks provide returns which are rarely in excess of the overall market. However, they are lucrative choices given their attractive choices and low price to earnings ratios. The idea behind such purchases is that if they are valued below a major market index such as the S&P 500, they may provide returns in excess of the market over time.
The preference of investors for value stocks has reduced the extent of the sell-off in broader markets. Recently, Morgan Stanley has said that a movement in favor of value stocks is historically followed by an extended phase where value stocks remain a preferred choice.
Energy Stocks in Focus
This is why energy stocks are particularly relevant at this moment. The energy sector has a price to earnings ratio of 14.2 which is much lower than the S&P’s figure of 17.8. This bears out the view that in an environment where investors choose value stocks, energy could remain in focus.
As of last week, 14 energy companies had released earnings numbers. 11 of these stocks have beaten estimates. Such a large proportion easily makes energy first among sectors where 10 or more companies have reported.
In addition, the energy sector continues to remain well ahead of the S&P 500 as a whole. This is quite a turnaround given that energy had a lackluster 2013, a period when most sectors were making significant gains.
We now present three of the big names reporting this week, each of which also have a good Zacks Rank and impressive price to earnings ratios.
ExxonMobil is the world’s largest publicly traded oil company, engaged in oil and natural gas exploration and production, petroleum products refining and marketing, chemicals manufacture, and other energy-related businesses. Approximately 83% of Exxon’s earnings come from its operations outside the U.S.
The company divides its operations into three segments: Upstream, Downstream, and Chemicals. ExxonMobil holds a Zacks Rank #3 (Hold). The stock’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 13.33.
Chevron is one of the biggest oil and gas companies in the world, based on proved reserves. It is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses.
Chevron, in its present form, resulted from the 2001 merger between Texaco and Chevron Corporation. In August 2005, the company acquired Unocal for $18.4 billion. Currently the company holds a Zacks Rank #3 (Hold). It has a P/E (F1) of 11.55.
ConocoPhillips is a major global exploration and production company with operations and activities in 30 countries that include the U.S., Canada, UK/Norway, China, Australia, offshore Timor-Leste, Indonesia, Libya, Nigeria, Algeria, Russia and Qatar.
As of the end of 2013, the company had estimated proved reserves of 8.9 billion oil-equivalent barrels (BOE) as compared with 8.6 billion BOE at the end of 2012. The company added 1.1 billion BOE of proved organic reserves in 2013, representing a reserve replacement ratio of 179%. Apart from a Zacks Rank #3 (Hold), ConocoPhillips has a P/E (F1) of 12.29.
The recent turnaround in favor of value stocks means that these oil major choices may ultimately see favorable price movements as well. This is why these stocks would be good choices for your portfolio.