The Energy Select Sector SPDR (NYSE: XLE), the largest exchange traded fund dedicated to that sector, is up just 8% in 2019 with about half that gain being accrued just this month.
Whether it's the December uptick in the energy sector or the group's status as a value destination, analysts are bullish on the sector heading into 2020. Very bullish.
“At the sector level, analysts are most optimistic on the Energy (66%), Health Care (59%), and Communication Services (59%) sectors, as these three sectors have highest percentages of Buy ratings,” according to FactSet research.
In other words, about two-thirds of the ratings on S&P 500 energy equities are bullish, well above the 50.4% of overall S&P 500 stocks with Buy ratings.
Why It's Important
The $11 billion XLE allocates allocates almost 43% of its combined weight to Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX). Those stocks didn't set the world on fire this year, ranking in the lower tier of the Dow, but the biggest global integrated oil stocks, including that pair, have been hailed by some on Wall Street as the most appropriate avenues for investors willing to test the energy sector in 2020.
There is something to the enthusiasm some analysts and investors are displaying for the the energy patch.
“The Energy sector is expected to report the highest (year-over-year) earnings growth of all 11 sectors at 21.4%. However, it is interesting to note the estimated average price of oil for CY 2020 ($56.02) is slightly below the average price of oil to date for CY 2019 ($56.92),” notes FactSet.
“At the sub-industry level, five sub-industries are projected to report growth in earnings. Four of these five sub-industries are expected to report double-digit growth: Oil & Gas Refining & Marketing (47%), Oil & Gas Equipment & Services (26%), Integrated Oil & Gas (19%), and Oil & Gas Storage & Transportation (13%).”
There are data points confirming Wall Street's enthusiasm for energy stocks. For example, DiamondBack Energy (NASDAQ: FANG) is rated as a Buy by 97% of analysts covering the firm. Only Assurant (NYSE: AIZ) at 100% has a higher percentage of Buy ratings.
ConocoPhillips (NYSE: COP) has a Buy rating percentage of 91%. DiambondBack and ConocoPhillips combine for nearly 6% of XLE's weight.