The oil-field services industry has been pushed down sharply in the Zacks Industry Rank list and presently stays in the bottom 7% thanks to lower oil prices and the taper-backed recent strength in the greenback.
Despite this negative backdrop, the sector kicked off this earnings season on a decent note. A gradual pickup in the global economy might be credited for this nice beginning to this in-focus sector.
The sector bellwether, Schlumberger Ltd. (SLB), came out with solid numbers on January 17, signaling that some ETFs that have high exposure in this company might be interesting plays, especially if the oil service sector is on the verge of turning around (read: Energy ETFs Surge on Q3 Oil Service Earnings Beats).
Schlumberger 4Q Earnings in Details
The world’s largest oilfield services provider dished out a decent Q4 by reporting adjusted earnings of $1.35 per share (excluding special items), which beat the Zacks Consensus Estimate of $1.33 and the year-ago number of $1.04.
Total revenue of $11.9 billion was up 7.4% from the year-earlier level of $11.1 billion and in line with the Zacks Consensus Estimate. The company’s strong international exposure, especially surging demand from the Middle East and Asia, and stepped-up activity in the U.S. Gulf of Mexico which is making up for the reduced onshore activity, helped it to stand out in the energy equities space.
Hopes are building up as we look into Schlumberger’s overall outlook for 2014, especially from foreign markets. Also, a day before the earnings release, Schlumberger announced a 28% hike in quarterly dividend adding to investors’ optimism.
Quite expectedly, the company’s strong earnings had a positive impact on the sector, as SLB shares were up 1.81% on the day with elevated volumes of roughly two times a normal day. The increased trading could have a huge impact on ETFs that are heavily invested in this renowned oil-service company.
Below, we have highlighted three oil-services ETFs with the highest allocation to SLB that could see some gains in a few upcoming trading sessions and are in focus following Schlumberger’s earnings (read: 3 Top Performing Energy ETFs in Focus Now):
iShares US Oil Equipment & Services ETF (IEZ)
This ETF – tracking the Dow Jones U.S. Select Oil Equipment & Services Index – invests about $507.0 million in assets in 51 securities, focusing solely on the energy world. In-focus SLB takes up the first position here with 21.49% of holdings. Generally, when one stock accounts for as much as 21% of an ETF's weight, its individual performance decides a lot of the fund’s price movement.
The fact proved true in this case also as this ETF gained about 0.43% in Friday trading. The fund also surged a handsome 28% in 2013. IEZ is a cheaper fund, charging 45% of expense ratio.
Market Vectors Oil Services ETF (OIH)
OIH tracks the Market Vectors US Listed Oil Services 25 Index. The index invests $1.48 billion of assets in 26 holdings. OIH devotes as much as 20.56% weight to SLB, followed by 10.76% in HAL. OIH is cheap in the space with an expense ratio of 0.35%.
The fund was up about 0.32% on the day, and returned about 25.85% in 2013.
PowerShares Dynamic Oil & Gas Services Fund (PXJ)
This product offers exposure to 30 energy stocks with SLB at the top position, allocating 5.18% of total assets. PXJ tracks the Dynamic Oil & Gas Services Intellidex Index and has amassed about $123.5 million thus far. The ETF charges 62 bps in fees, so it is a bit more expensive than some of its counterparts in the space.
The fund added about 0.40% on the day of SLB’s earnings release, and 27.49% in 2013 (read: Is This the Top for Oil Service ETFs?).
Schlumberger’s earnings have surprised the market for the last four quarters by decent margins and called for average surprise of 2.98%. This should serve as a cornerstone for the entire oil services industry. This week, we are due for earnings announcements from other sector behemoths including Halliburton (HAL) and Baker Hughes (BHI).
While many are still not convinced about the prospect of oil-field services sector at this moment, risk-tolerant investors can buy in on the ongoing dip. And investors should note that the basket form of approach is always better than investing in a single company while it comes to playing a risky sector like what we are seeing with the oil field services space right now.
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