Three large energy ETFs have been moving in near lockstep for the past 12 months, posting gains of more than 40%. The Energy Select Sector SPDR (NYSE: XLE), the iShares Dow Jones US Energy (NYSE: IYE), and the Vanguard Energy ETF (NYSE: VDE) track one another nearly exactly. The
iShares S&P Global Energy ETF (NYSE: IXC) has also posted a gain over the past year, but the gain is nearer 30%. The main difference between IXC and the others is IXC’s exposure to global producers whereas the others focus exclusively on US stocks.

The Energy Select Sector SPDR (NYSE: XLE) posted a gain of more than 44% in the past year, and has gained nearly another 13% this year. The last three months have seen a negative move in the fund as the price of crude has retreated amid worries over a possible US debt default. Shares are trading about 1.67% higher in the pre-market this morning, at $76.45, in a 52-week range of %50.33-$80.97.

The iShares Dow Jones US Energy (NYSE: IYE) has returned a gain of nearly 43% in the past 12 months and year-to-date gain of 12.61%. Like XLE, the past three months have been negative. Shares closed down about -1% on Friday, at $43.60, in a 52-week range of $29.12-$46.12.

The Vanguard Energy ETF (NYSE: VDE) gained more than 44% over the past year, and its year-to-date gain is 12.66%. The last three months have been negative for VDE as well. Shares closed down nearly -1% on Friday, at $112.29, in a 52-week range of $73.85-$118.43.

The iShares S&P Global Energy ETF (NYSE: IXC) has posted a one-year gain of around 32% with a year-to-date gain of 7.82%. Shares have lost more than -7% in the past three months. Shares closed down nearly -1% on Friday, at $41.65, in a 52-week range of $30.00-$45.61.

The global nature of IXC, which includes holdings in BP, Total, Shell, and Petrobras among others, is the difference between this fund and the others and is very likely the main contributing cause to IXC’s inability to match the returns of the other funds. Exxon and Chevron are common to all the funds and each has staggered in the past three months. As have Shell and Total, which is down nearly -10%. Italy’s Eni is off nearly -14% and Canada’s Suncor is down nearly -16% over the past three months.

All the negativity on the integrated and E&P stocks is due to production declines even while prices remain high. European stocks have more exposure to production disruptions from Libya, and BP is still trying to recover from last year’s Gulf of Mexico disaster. While it makes sense to assume that the foreign producers will do better as prices rise, that is only interesting to investors if production declines can be reversed.

Right now, declines to larger European oil & gas companies could be irreversible until the situation in Libya is resolved. Eni, and to a lesser degree, Total need to Libyan oil to come back. Political stability in North Africa would also help. These results will have a positive impact on the outlook for some of the larger holdings of IXC and are worth keeping a watch for.

Paul Ausick

The analysts’ calls are based on serious under-valuation of BP’s assets. One analyst puts the value of BP’s assets at about $248 billion, while the company’s current market cap is around $145 billion. That $100 billion difference could be unlocked by splitting the company. Or could it?

BP is still a long way from recovering its footing from the explosion at its Gulf of Mexico Macondo well in April 2010 that killed 11 workers and dumped 5 million barrels of oil into the sea. There is virtually no chance that the US government would approve any proposal to split up BP until substantially all the company’s liabilities from the Macondo disaster are toted up. So far, BP has sold off about $25 billion in assets to finance the clean-up and pay damage claims, but a final determination of the company’s liabilities remains in the future.

One might also argue that when BP’s shares hit a bottom in late July last year ($34.16 on US-traded ADRs), the market was over-reacting. Shares lost about 55% of their value from before the Macondo spill. Since then, ADRs have recovered to more than $46, about 35%.

At least some of that gain is due to substantial improvement in refining revenue and margins. Because the crude market is now being driven by the price of Brent crude, BP’s access to WTI crude at its Midwestern US refineries gives the company a built-in discount of somewhere around $10/barrel on its feedstock. Like all good things, this may not last forever, but while it does its a good thing for BP.

Both Marathon and Conoco chose to use this moment of high refining margins to spin-off their refining and marketing operations. But the still-uncertain issues of BP’s total liability for the Macondo spill aren’t the only issue.

BP is once again being thwarted in Russia. It’s attempts to get a foothold in the development of Russia’s Arctic offshore resources have been foiled by a group of investors in TNK-BP who are seeking billions of dollars for damages done to TNK-BP as a result of BP’s stock swap offer to Russia’s Rosneft to participate in the Arctic project. The investors’ stake in TNK-BP is valued at around $32 billion, but BP can’t buy them out, either with or without Rosneft’s help.

BP has got to hold on to its assets, including its refining and marketing assets, or it risks having to sell off even more upstream assets in the event that either the US liabilities go higher than the company expects or that it is forced to pay several billions to the TNK-BP partners.

But BP investors, who now receive a paltry dividend of $0.07, may not be willing to wait, especially now that the investment banks have put a value on a separation of the upstream and downstream parts of BP.

Paul Ausick

Refining operations do figure into the overall share price of companies like Conoco, Exxon, and Chevron, of course, but their biggest impact in the news is when refining can’t provide income or the refinery catches fire. Pure-play refiners don’t get much respect in the larger energy ETFs either. We looked at the Energy Select Sector SPDR (NYSE: XLE), the Vanguard Energy ETF (NYSE: VDE), the SPDR S&P Oil & Gas Exploration and Production ETF (NYSE: XOP), and the iShares S&P Global Energy ETF (NYSE: IXC) to try to figure out if Conoco’s split will have much impact on the funds.

The Energy Select Sector SPDR (NYSE: XLE) holds about $8.8 billion in assets and counts Conoco as one of its top four holdings, trailing Exxon, Chevron, and Schlumberger. The fund holds shares in Valero, Tesoro, and Marathon Petroleum, the new refining company formed when Marathon Oil spun out its refining and marketing operations. The Conoco announcement is probably responsible for the greater than 1% increase in the fund’s share price so far today. XLE gets a 4-star rating from Morningstar.

The Vanguard Energy ETF (NYSE: VDE) holds assets totaling about $2 billion, and its top five holdings are identical with XLE’s. The fund holds shares in the same refiners as XLE, and in addition has taken a small stake in HollyFrontier, recently formed from the merger between Holly Corp. and Frontier Oil. Shares in VDE are up about 0.7% today. The fund gets a 5-star rating from Morningstar.

The SPDR S&P Oil & Gas Exploration and Production ETF (NYSE: XOP) posts total assets of about $863 million. This is an equal-weighted fund, and its top holding is Western Refining, with a weight of 1.71% of assets. HollyFrontier is its third-largest holding and Tesoro is ranked tenth. XOP’s shares are also trading up today, by about 0.5%. The fund gets a 4-star rating from Morningstar.

The iShares S&P Global Energy ETF (NYSE: IXC) holds assets totaling about $1.3 billion, but unlike the other funds invests only about 67% of its assets in North American stocks, compared with at least 98% in the other funds. It does hold refining stocks, with its stake in Valero being the largest, at 0.53%. The fund gets a 4-star rating from Morningstar.

The split up of Conoco will benefit these funds, and others like them, both today and again when the spin off is completed. Of course, a lot depends on the final details of how many shares in the new Conoco refining company will be issued for each share of Conoco. But if crude prices and pump prices remain high, these ETFs should see another gain when the Conoco deal is finally completed.

Paul Ausick

The American Funds Washington Mutual A (AWSHX) looks for value in dividend-paying stocks. To make the cut, a stock has to have paid a dividend in 9 of the past 10 years, and no alcohol or tobacco stocks are allowed. Over the past 10 years the fund has averaged a 3.49% annualized return. Two of the fund’s top holdings have P/E ratios above 25, with Merck & Co. (NYSE: MRK) at a whopping 68.97. There’s not much uncovered value there, but Merck’s dividend yield is a substantial 4.3%. The fund also has about half as much exposure to the financial sector as the all funds in the large-value category, and far less than the others we’re looking at here.

The fund’s NAV was $28.05 on June 15th, within a 52-week range of $22.58-$29.67. Assets total nearly $54 billion. The expense ratio is a low 0.70% and the yield is 2.30%. The fund has a 3-star rating from Morningstar.

The Vanguard Windsor II Investor (VWNFX) primarily invests in stocks that pay high dividends and sport a low P/E ratio. Unlike AWSHX, tobacco stocks are welcome, and Philip Morris Intl. Inc. (NYSE: PM) is the seventh largest stock holding in the fund. Of the fund’s top holdings, Philip Morris is the fund’s best performer for the trailing 12 months. Maybe AWSHX ought to reconsider its ban on tobacco and other sin stocks. VWNFX and PRFDX hold virtually identical stakes in financial sector stocks, at 20.21% and 20.04%, respectively.

The NAV on June 15th was $26.36, within a 52-week range of $21.24-$28.22. Assets total almost $38 billion. The expense ratio is a very low 0.35% and the yield is 1.74%. The fund carries a 3-star rating from Morningstar.

The T. Rowe Price Equity Income (PRFDX) searches for value in companies that are cheap relative to their historic multiples, while still paying attention to dividend yield. The fund holds nearly 5% of its assets in cash. Like AWSHX, energy stocks comprise around 15% of the fund’s total assets. The fund benefited from dividend increases from financial stocks and some industrials earlier this year. This is a big blue-chip fund where bargains are few and yields are the norm. Searching for value among blue-chip names that have faltered and maintaining relatively small positions across the board offers both an upside play and a safety play not matter which way the market turns.

The NAV for PRFDX on June 15th was $23.77, within a 52-week range of $19.42-$25.53. Assets top $23 billion. The expense ratio is a low 0.68% and the yield is 1.75%. The fund has a 4-star rating from Morningstar.

The Fairholme (FAIRX) fund invests in solid businesses run by excellent managers. The fund’s largest stock holding, American International Group Inc. (NYSE: AIG), has completely collapsed since January losing some 50% of its value. FAIRX is very heavily tilted toward financial stocks with about 74% of its assets in the sector. The fund’s second largest holding is in real estate. Both have done poorly this year, but fund manager Bruce Berkowitz is sitting tight. He believes that the sector is working through its problems and that it will emerge stronger than ever in a year or so.

The fund’s NAV was $31.68 on June 14th, within a 52-week range of $29.91-$36.53. Assets total almost $15 billion. The expense ratio is an average 1.00% and the yield is 1.13%. The fund carries a 4-star rating from Morningstar.

Fairholme aside, these funds all trade near 52-week highs, likely a result of investors’ continuing search for value. Fairholme, near its 52-week low, needs a recovery in the financial sector.

Continuing high prices for oil should help support more energy-heavy AWSHX and PRFDX. VWNFX, like FAIRX, needs some help from the financial sector to get back on track. Even though oil prices are falling as the dollar gains strength against the euro, over the course of the year, average prices per barrel will be higher, pushing oil company profits higher.

A smaller screen at value funds and ETFs was made earlier this week.

Paul Ausick

Imagine if we really do get a correction.  How many investors want into the market in some of the great quality names.  Now that the NASDAQ 100 has rebalanced, measured by the PowerShares QQQ (NASDAQ: QQQ), Apple Inc. (NASDAQ: AAPL) is less of the index and that index has enough stronger components now that it can actually fall 10%.  What about the re-emergence of companies like General Electric Co. (NYSE: GE), The Dow Chemical Company (NYSE: DOW), and Caterpillar Inc. (NYSE: CAT)?  Many investors would love to get a chance to get into these winners.

G.E. has recovered much of its losses from the peak of the Great Recession when its shares went well under $10.00.  Its shares would have to fall to $19.50 for a 10% correction to be realized. With a 52-week trading range of $13.75 to $21.65, many investors would love a shot to get GE shares down 10% again. Thomson Reuters has a consensus analyst target of over $24.00 today.

Dow Chemical has also regained much of the losses from the Great Recession and shares were looking like they might hit as low as $5.00.  Its shares are down over 4% and around $39.10 today.  Its 52-week range is $22.42 to $42.23, so a 10% sell-off would be a chance to buy back in around $38.00. Thomson Reuters has a consensus analyst target of almost $47.00 today.

Caterpillar Inc. (NYSE: CAT) is back close to all-time highs because of the global recovery, but its shares were under $30.00 at the peak of the Great Recession.  The stock is down nearly 3% at $109.60 today.  With a 52-week range of $54.89 to $116.55, a 10% correction would allow investors to buy in at just under $105.00.  Thomson Reuters has a consensus analyst target of over $129.00 today.

A few of Tarsala’s points worth noting are that the S&P is very cheap at under 13-times forward earnings and we have already seen five consecutive quarters with revenue and earnings growth, and the quality of earnings looks solid.  He specifically cites data in the key ETFs of Energy Select Sector SPDR (NYSE: XLE) and in Industrial Select Sector SPDR (NYSE: XLI).  In another presentation, Tarsala analyzes earnings season and shows how the earnings quality is better than we have seen in years.

Investors are now likely to feel burned by silver and “the safe haven of the new currency.” The iShares Silver Trust (NYSE: SLV) has been the biggest silver play for retail investors in silver of all.  After peaking above $48.00 just two weeks ago, its shares closed unofficially down over 8% at $34.49 and that is now down about 30% from the peak.  How many investors who just caught the silver burn will go back there quickly?  The little guys jumped into the devil’s metal only to find that the rules of the game were changed without notice based upon margin requirements.

A 10% stock market correction would probably take the sails out of commodities even more than you have seen in the last ten days and it would probably take away the near-unilateral belief that interest rates are about to skyrocket.  This could establish lower floors that the ‘launches’ would take off from in the future.

As we noted when we gave our own thesis for a possible correction… Imagine how many investors could finally get back in the market at decent prices.  In some ways, maybe we should all hope for a 10% correction after all.

You are invited to join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

The effect of First Solar’s predictions for 2009 has had a chilling effect on other solar shares. JA Solar Holdings Co. Ltd (NASDAQ: JASO) is down more than 6%. LDK Solar Company (NYSE: LDK) has dropped more than 4% this morning. SunPower Corporation (NASDAQ: SPWRA) fell more than 7%, and even the Claymore/MAC Global Solar Energy ETF (NYSE: TAN) is off 7%.

The pullback is coinciding with what we are seeing in other energy ETFs as well. Market Vectors Coal (NYSE:KOL) is down slightly, as is Energy Select SPDR (NYSE:XLE). Only United States Oil Fund (NYSE:USO) is up slightly.

Energy stocks just can’t get any traction because the economic outlook is so weak for the next couple of quarters. No one expects energy use to rise because the economy is forcing manufacturers to reduce production and consumers to cut spending. Lower demand for goods is lowering demand for energy, no matter the source.

While the drop in non-solar ETFs can’t be attributed solely to First Solar’s guidance, when it is combined with already soft outlooks from coal and oil producers, the overall picture that emerges is not one that supports growth in energy use for the near term. Solar energy has taken some hits from hydrocarbon producers for a long time. But now, it looks like it could be developing its own hammer.

Paul Ausick
February 25, 2009

On last look we saw oil up $3.32 at $99.30 per barrel and that was on the real market. We are over $99.00 and the mystical $100 oil is a mere difference in semantics at this point.  In fact, we’d now expect that oil could see a real $100 trade this week because the traders are more in control of oil prices than the fundamentals.

We’ve already got T. Boone Pickens maintaining $100 oil and he’s been right the entire run up so far.  Ken Heebner is also sticking with his oil names.  Oil has a large geopolitical risk premium assigned to it.  The exact amount is unknown.  Some feel the premium is $10 per barrel, and others have a $30 suggested premium.  We won’t even try to claim the answer if oracles like T. Boone Pickens can’t put an exact price on it. 

But what we do know for sure is that the Gulf of Mexico has largely escaped any real damage for the last two years from hurricane season.  We have had no steady net oil delivery misses at terminals throughout the Middle East, and depending on who you talk to the argument is that Iraq is close to being back on-line as a decent producer.  Russia and others are becoming more prominent players and there is enough oil from the Canadian oil sands that is much more than feasible at levels anywhere remotely close to today’s prices.

Imagine if Pakistan was a key oil player.  Imagine if Chavez in Venezuela could make more than a sting.  Imagine if we have an active hurricane season.  Imagine if our pipeline explosion seen last month was much larger.  Those geopolitical risks are there and we are up at $99+ with no significant supply issues.  A real oil trade at $100 is less than 1% away and at this point seems inevitable.

The Oil Services HOLDR’s (AMEX: OIH) are up over 1% at $191.20, yet the highs there over the last year are $204.62.  The more liquid Energy Select Sector SPDR (AMEX; XLE) are up marginally by 0.3% at $79.65, and the highs there over the last year are $80.60.

How much higher oil goes is anyone’s guess.  The case for much lower oil is a recession, so maybe high oil prices aren’t all that bad.

Jon C. Ogg
January 2, 2008

He said oil prices will continue to rise because we have no control over our destiny there.  He is talking up natural gas to replace diesel, which he said natural gas can be 50% to 70% cleaner than diesel.  As far as price parity, Pickens said LNG measured gallons comes in today at $3.55 per gallon of diesel versus $3.29 for liquid natural gas and they both take you the same distance.

As far as future oil prices, Pickens said "Get ready for $100.00, you’ll see $100.00 oil before $80.00."  His point is that oil exporters have seen how high we’ll continue to pay, and he even said that this is likely going to become the norm.   He thinks that the global production capacity is 85 million per barrels per day now, and he noted you have to 1,000 wells pumping 1,000 barrels per day to get just 1 million barrels per day.

• Clean Energy Fuels Corp. shares are up about 5% at $15.00 today, and the post-IPO trading range this year has been $10.81 to $20.65.   Pickens can sometimes impact the sector with his calls:
• the Oil Services HOLDRs (AMEX: OIH) are up 0.6% to $186.47 today;
• the Energy Select Sector SPDR (AMEX:XLE) is up 0.4% at $77.25 today.

Jon C. Ogg
December 11, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

As suspected, the shortfall is due to lower downstream refining margins.  Production decreased by 2% year over year on an oil equivalent basis.  Exxon also spent some $5.4 Billion on capital spending and exploration.  It repurchased roughly $7 Billion in stock.

The stock is actually indicated down almost 1.7% pre-market at $90.45 despite oil being over $95.00 this morning.  Sometimes those pesky little charts are quite indicative of upcoming news.  Exxon’s 52-week trading range is $69.02 to $95.27.  The Energy Select Sector SPDR (AMEX:XLE) is also now indicated down 0.9% in early pre-market activity.

Goldman Sachs did lower oil estimates this week, although so far oil prices are higher than when the call was made.

Jon Ogg can be reached at jonogg@247wallst.com; he produces the Special Situation Investing Newsletter and does not own securities in the companies he covers.

A chartist would say this doesn’t bode well at all for earnings.  Energy has definitely seen a bit of a sector rotation out into tech, which was partly noted on the Goldman Sachs downgrade on oil as a commodity yesterday.  Without owning a crystal ball, we can’t say which is right or if both combined make the explanation right.

First Call has estimates pegged at $1.75 EPS tomorrow.  The company’s buyback continues, but with shares up around $90 it’s a wonder just how many shares the largest oil company in the world actually bought.  Options are a bit hard to use as a comparison to others, but it looks like options traders have an expected price change in a range of $2.50 to $3.40 in either direction.  Analysts that follow Exxon have an average price target of about $97.00.

What is hard to imagine is that Exxon’s numbers would be bad with oil prices this high.  But Valero (NYSE:VLO) posted lackluster earnings because of refinery costs.  Schlumberger (NYSE:SLB) has also performed dismally since its earnings report.

Shares closed up 0.9% today at $91.99, and the 52-week trading range is $69.02 to $95.27.  Regardless of the actual number on EPS tomorrow, you can imagine the media headlines are going to be focused on the monstrous revenue number for its shock effect.  It will be interesting to see the reaction in the Energy Select Sector SPDR (AMEX:XLE) since ExxonMobil makes up some 21.38% of the ETF on last look.

Jon C. Ogg
October 31, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the Special Situation Investing Newsletter and does not own securities in the companies he covers.