The Energy sector ranks eighth out of the ten sectors as detailed in my Sector Rankings for ETFs and Mutual Funds report. It gets my Dangerous rating, which is based on aggregation of ratings of 19 ETFs and 87 mutual funds in the Energy sector as of April 3, 2014. Prior reports on the best & worst ETFs and mutual funds in every sector are here.
Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the sector. Not all Energy sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 25 to 162), which creates drastically different investment implications and ratings. The best ETFs and mutual funds allocate more value to Attractive-or-better-rated stocks than the worst ETFs and mutual funds, which allocate too much value to Neutral-or-worse-rated stocks.
To identify the best and avoid the
In an expensive market investors should look for the best combination of value and growth in making sector allocations.
The Energy sector was among the worst performing sectors within the S&P500 with earnings declining by 4.4% year on year. The sector was lead lower with earnings declines at the majors Exxon Mobil (XOM) and Chevron (CVX). The refiners were a relative bright spots with Valero (VLO) and Phillips (PSX).
According to S&P Energy sector earnings in the S&P500 are projected to grow by 14.0% in 2014 and by 12.44% over the five years. At the same time Energy trades at forward price to earnings multiple of 13.52 - a 13% discount to the market multiple of 15.6
Measured by the popular PEG ratio the energy sector is at 1.09, the lowest multiple among S&P500 sectors except consumer discretionary at 1.06.
Based on the above energy sector offers the best value