Trading the Undervalued Energy Sector
Source: Thomson Reuters
My "Buy and Trade" Strategy for XLE. ($69.65) -- The daily chart stays positive but overbought on closes above the 21-day, 50-day and 200-day simple moving averages at $67.58, $65.70 and $69.33, respectively. My semiannual value level lags at $47.34 with a new monthly pivot at $68.46 and my quarterly risky level at $86.22.
The above table shows data from ValueEngine.com covering the 45 components of the XLE listed from top to bottom by percentage of index weight. This ETF is heavily weighted by Exxon Mobil (XOM - Get Report) (19.32%) and Chevron (CVX - Get Report) (15.56%). Note that ValuEngine does not have enough data to analyze Phillips 66 (PSX), which only began trading on April 12.
Reading the TableOV/UN Valued -- The stocks with a red number are undervalued by the percentage shown. Those with a black number are overvalued by that percentage, according to ValueEngine. VE Rating -- A 1-Engine rating is a strong sell, a 2-Engine rating is a sell, a 3-Engine rating is a hold, a 4-Engine rating is a buy and a 5-Engine rating is a strong buy. Last 12-Month Return -- Stocks with a red number declined by the percentage shown over the last 12 months. Stocks with a black number increased by that percentage. Forecast 1-Year Return -- Stocks with a red number are projected to decline by the percentage shown over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.
Analysis of the Energy SectorThe energy sector is undervalued by 10.3% according to ValueEngine.com, which is a reason to consider investing in this sector. Keep an eye on the price-to-earnings ratios, as several components have P/E ratios well above 20. Looking at the performance measures, 14 of the 45 stocks in the XLE have traded higher over the past 12 months led by Exxon Mobil, up 11.6%; Williams Cos. (WMB - Get Report) up 27.5%; Spectra Energy (SE) up 18%; Valero Energy (VLO - Get Report), up 11.9%; Cabot Oil & Gas (COG), up 14.1%; Kinder Morgan (KMI), up 31.8%; Marathon Petroleum (MPC), up 10.7%; Tesoro Corp (TSO), up 13.8%; and Sunoco (SUN), up 20.7%. Seven of these nine stocks are rated buy, according to ValuEngine, while COG and SUN have hold ratings. Three of the nine are in the oil and gas-production and pipeline industry, while four are in the oil refining and marketing industry. Looking at the price patterns for the leaders, we see that XOM has had a problem trading above $88.25 since February. WMB tested a multi-year high at $34.63 on May 2. SE set an all time high at $32.27 on March 19. VLO shows upside potential to its 120-month simple moving average at $31.48. COG is approaching its all time high at $45.00 set on Nov. 11, 2011. KMI remains well below its year-to-date high at $40.25 set on April 3. MPC set a year-to-date high yesterday at $47.94. TSO is above its 120-month simple moving average at $21.51 with a 52-week high at $30.15 on March 19. To summarize, the XLE needs to maintain weekly closes above my new monthly pivot at $68.46 to keep its upward momentum. Additional stimulus from the Federal Reserve should help. At the time of publication, the author did not own any of the stocks in the table and held no positions in XLE. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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