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Here's Why Energy Stocks Plunged Despite the Rally in Crude
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A spike in oil price is generally followed by a surge in the value of energy stocks. However, this time, despite the rally in crude prices, energy companies have taken a hit. This might be quite a shocker for the novice, but those in tune with the stock market are pretty aware that money is being reallocated from energy to technology as the latter is mainly fueling the current economy.
Crude Rallies
Since April-end, the price of West Texas Intermediate (WTI) has jumped more than 239% with economies reopening and people getting back to work. WTI crude has now touched a five-month-high mark since the Gulf Coast region has witnessed the shutdown of almost 80% of off-shore oil production as Hurricane Laura is expected to hit the Louisiana and Texas coasts as a Category 3 storm as early as Wednesday evening.
Notably, WTI crude for October delivery rose 1.7% to $43.35 per barrel recently, marking the highest level since Mar 5, per Dow Jones Market Data.
Energy Stocks Plunge
Surprisingly, the Energy Select Sector SPDR – an assortment of the largest U.S. energy companies – fell 1.4% on Tuesday, reflecting extremely weak investor sentiments. This gained prominence when the news of oil biggie Exxon Mobil Corporation (XOM - Free Report) exiting Dow Jones Industrial Average after more than 90 years surfaced. Per S&P Dow Jones Indices analysis, the blue-chip benchmark will now have Chevron Corporation (CVX - Free Report) as the only energy name to portray 2.1% of the price-weighted index.
With a market cap of more than $415 billion, ExxonMobil was the largest U.S. company in 2013. Over the years, ExxonMobil’s market value has plunged below $180 billion and, hence, the U.S. economy is no longer being driven by energy majors but by technology giants like Apple Inc. (AAPL - Free Report) , Amazon.com, Inc. and Microsoft Corporation instead. As a result, with the replacement of ExxonMobil by business software company salesforce.com Inc. (CRM - Free Report) , the blue-chip index will get more tuned with the current American economy.
Notably, unlike the S&P 500 index which evaluates the weight of the component stocks on the basis of market capitalization, the Dow Jones Industrial Average calculates the weight on the basis of share price of the components. With Apple’s planned 4-to-1 stock split, the technology sector will have less weightage in the index. Thus, to compensate for the benchmark’s lower exposure to the technology sector, the price-weighted index, tracking 30 large publicly-owned companies, has replaced ExxonMobil with Salesforce.
Now, let’s analyze why ExxonMobil has been booted from the Dow but not Chevron. Looking at the 10-year price chart, ExxonMobil plummeted 31.7% to $40.88 per share, underperforming Chevron’s 14.9% improvement to $86.13 per share. Thus, being a price-weighted index, Dow Jones Industrial Average was left with no choice but to dump ExxonMobil.
Incorporated in 1940, Helmerich & Payne is engaged in the contract drilling of oil and gas wells in the U.S. and internationally. The stock slipped 3.4% in the NYSE on Aug 25.
Based in Houston, TX, Phillips 66's operations incorporate refining, midstream, marketing and specialties, and chemicals. The stock slipped 3.2%.
London-based TechnipFMC is a leading manufacturer and supplier of products, services and fully integrated technology solutions for the energy industry. The stock is down by 1.9%.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.
The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.
Image: Bigstock
Here's Why Energy Stocks Plunged Despite the Rally in Crude
A spike in oil price is generally followed by a surge in the value of energy stocks. However, this time, despite the rally in crude prices, energy companies have taken a hit. This might be quite a shocker for the novice, but those in tune with the stock market are pretty aware that money is being reallocated from energy to technology as the latter is mainly fueling the current economy.
Crude Rallies
Since April-end, the price of West Texas Intermediate (WTI) has jumped more than 239% with economies reopening and people getting back to work. WTI crude has now touched a five-month-high mark since the Gulf Coast region has witnessed the shutdown of almost 80% of off-shore oil production as Hurricane Laura is expected to hit the Louisiana and Texas coasts as a Category 3 storm as early as Wednesday evening.
Notably, WTI crude for October delivery rose 1.7% to $43.35 per barrel recently, marking the highest level since Mar 5, per Dow Jones Market Data.
Energy Stocks Plunge
Surprisingly, the Energy Select Sector SPDR – an assortment of the largest U.S. energy companies – fell 1.4% on Tuesday, reflecting extremely weak investor sentiments. This gained prominence when the news of oil biggie Exxon Mobil Corporation (XOM - Free Report) exiting Dow Jones Industrial Average after more than 90 years surfaced. Per S&P Dow Jones Indices analysis, the blue-chip benchmark will now have Chevron Corporation (CVX - Free Report) as the only energy name to portray 2.1% of the price-weighted index.
With a market cap of more than $415 billion, ExxonMobil was the largest U.S. company in 2013. Over the years, ExxonMobil’s market value has plunged below $180 billion and, hence, the U.S. economy is no longer being driven by energy majors but by technology giants like Apple Inc. (AAPL - Free Report) , Amazon.com, Inc. and Microsoft Corporation instead. As a result, with the replacement of ExxonMobil by business software company salesforce.com Inc. (CRM - Free Report) , the blue-chip index will get more tuned with the current American economy.
Notably, unlike the S&P 500 index which evaluates the weight of the component stocks on the basis of market capitalization, the Dow Jones Industrial Average calculates the weight on the basis of share price of the components. With Apple’s planned 4-to-1 stock split, the technology sector will have less weightage in the index. Thus, to compensate for the benchmark’s lower exposure to the technology sector, the price-weighted index, tracking 30 large publicly-owned companies, has replaced ExxonMobil with Salesforce.
Now, let’s analyze why ExxonMobil has been booted from the Dow but not Chevron. Looking at the 10-year price chart, ExxonMobil plummeted 31.7% to $40.88 per share, underperforming Chevron’s 14.9% improvement to $86.13 per share. Thus, being a price-weighted index, Dow Jones Industrial Average was left with no choice but to dump ExxonMobil.
Three Losers
Now, key energy names that plunged despite the uptick in oil prices are Helmerich & Payne, Inc. (HP - Free Report) , Phillips 66 (PSX - Free Report) and TechnipFMC plc (FTI - Free Report) . While Phillips 66 carries a Zacks Rank #4 (Sell), Helmerich & Payne and TechnipFMC carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Incorporated in 1940, Helmerich & Payne is engaged in the contract drilling of oil and gas wells in the U.S. and internationally. The stock slipped 3.4% in the NYSE on Aug 25.
Based in Houston, TX, Phillips 66's operations incorporate refining, midstream, marketing and specialties, and chemicals. The stock slipped 3.2%.
London-based TechnipFMC is a leading manufacturer and supplier of products, services and fully integrated technology solutions for the energy industry. The stock is down by 1.9%.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.
The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.
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