Top Sectors of 2011: Energy, Industrials

BOSTON (TheStreet) -- It's been energy -- and more energy -- this year when it comes to investing. Given the strife in the Middle East, that's likely to continue.

But safe, secure, stable is what you want here.

Even before the Middle East's political blowups, Standard & Poor's said "with their solid dividend yields and huge businesses diversified internationally, we look for the equity values of U.S.-based super-major oil and gas companies to rise alongside our forecasts for improved global economic growth and crude oil prices."

The oil patch returned an average 12% so far this year, versus the S&P 500 Index's 4.6% gain, besting all other sectors by about double.

In second place is the industrials sector with a 6.3% return, according to Fidelity Investments research data.

Other sector returns were: information technology at 5.6%, consumer discretionary, 4.3%, financials, 4.3%, health care, 2.3%, materials, 1.1%, utilities, 0.9%, consumer staples, 0.4%. The only loser in the bunch was telecommunications services, with a decline of 3%.

It's important to note that money is flowing back into the U.S. seeking stable, reliable companies. Mutual-fund-flows tracking firm EPFR Global reported Friday that $47 billion poured into developed markets, and the second week of February saw the biggest inflows into those markets in more than 30 months coming out of emerging markets stocks.

As for the energy sector, companies' share-price returns are only going to get better because of the latest Middle East turmoil, the latest in Libya. Oil prices are over $100 a barrel, the highest since 2008, and may be going higher.

So any oil or natural gas provider with a North American base has an advantage. That's because protests in Libya, Africa's third-largest oil producer, are the first to meaningfully put oil supplies at risk, Goldman Sachs said in a research report Tuesday.

Goldman, which is forecasting benchmark crude to rise to $103 within 12 months, said recent violent protests in Bahrain show that wealthy oil-rich Gulf states are also vulnerable to political upheaval.

As an investor, that means you want oil companies with exposure to politically stable regions, whether that's oil shale in Canada, offshore of the Gulf of Mexico or in Asia.

On the following pages are large, stable energy companies poised to do well this year, according to investors and analysts.

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Chevron ( CVX) is a good sector bet. Chevron is an integrated energy company with exploration, production and refining operations worldwide. It's the second-largest oil company in the U.S.

Chevron has refineries in the U.S., U.K., South Africa and Asia, all stable political climates.

Chevron shares are up 11% this year and 41% over the past 12 months.

Morningstar analysts say investments in liquid natural gas projects around the world will allow the company to better exploit stranded resources, in other words new sources of oil from just sticking a hole in the ground.

Perhaps most significantly, the company's recent acquisition of Atlas Energy offers it a secure energy source as it is one the premier U.S. shale developers and could lead to additional exploration or acquisition of other resources.


You couldn't go wrong with ExxonMobil ( XOM) either, and that's before the Middle East political turmoil of the past few weeks.

Morningstar analysts say it's a virtual lock. "With a majority of the world's remaining resources in government hands, opportunities for the company to grow its large production base are limited. However, we believe ExxonMobil's experience and expertise, particularly with large projects, should allow it to successfully compete for resources."

ExxonMobil shares are up 17% this year and 33% in the past 12 months.

Standard & Poor's gives ExxonMobil its highest rating, a five-star, strong buy recommendation. It gives its shares a $95 price target.

The research firm says the company, which has a record of "superior earnings and dividend growth and stability" will benefit "from 'big-pocket' upstream growth opportunities in the deepwater, liquefied natural gas, onshore unconventional, and ventures with state-owned companies."

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Schlumberger ( SLB), one of the top firms in the oil-services industry, is also well-positioned to take advantage of the oil industry growth trend, given its financial strength, geographical and product diversification, well-regarded research labs, and unique technology acquisition strategy.

Schlumberger's shares are up 12% this year and 52% in the past 12 months, about on par with the oil and gas equipment sector's gain.

In a Feb. 19 research report, Standard & Poor's said: "With crude oil prices remaining stubbornly above the $80 mark, we think upstream producers will grow increasingly confident about exploration drilling, which we think bodes well for (Schlumberger) and its portfolio of oilfield services."

For fiscal 2011, analysts estimate Schlumberger will earn $3.87 per share. For fiscal 2012, analysts estimate earnings will grow 29% to $4.98 per share.

Analysts polled by Standard & Poor's give its shares 12 "buy" ratings, 20 "buy/holds," three "holds" and one "weak/hold."


In the industrials sector, there's one pick that is a good consideration, old reliable General Electric ( GE). It's had its share of challenges, but analysts think mighty GE is on the comeback trail.

General Electric's shares are up 14% this year and 31% over the past year, but that comes after a three-year average annual loss of 12%.

It's hard to define the elephant but this huge conglomerate is making tracks as the economy recovers. It sells products ranging from jet engines and gas turbines to consumer appliances, railroad locomotives and medical equipment. General Electric also owns NBC Universal and is a leading provider of consumer and commercial financing.

Morningstar analyst Daniel Holland writes that "after shedding underperforming businesses during the past few years, the firm has energy infrastructure square in its sights. We believe GE will emerge as a leader in the power infrastructure market, which will be the backbone for the firm's growth."

"The portfolio of businesses continues to be correlated with industrialization and the needs of growing economies," writes the Morningstar analyst.

Standard & Poor's gives it a four-star buy rating, just below its highest five-star rating. It gives it a 12-month price target of $24 versus its recent price of $21.33.

For fiscal 2011, analysts estimate GE will earn $1.32 per share, S&P says. For fiscal 2012, analysts estimate GE's earnings per share will grow by 23% to $1.62 per share.

S&P's review of analysts ratings find three "buys," nine "buy/holds" and six "holds."

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