S&P Capital IQ equity analysts have a positive fundamental outlook on the influential Integrated Oil & Gas sub-industry, as well as most of the sector’s other smaller sub-industry groups. We believe that oil prices will decline slightly from current levels, averaging $91.96/bbl. in 2012 and $89.51 in 2013 as global economic growth slows.
The Capital IQ consensus sees Energy sector EPS rising 11.2% in 2013 versus an 11.9% gain estimated for the S&P 500. According to Capital IQ, the sector’s recent valuation of 12.3X consensus estimated 2012 EPS is below the 500’s P/E of 14.0X, as oil price volatility keeps investors from assigning the sector too high a valuation, in our view. The sector’s P/E-to-projected five-year EPS growth rate (PEG) ratio of 2.1X is above the broader market’s 1.2X. This sector’s marketweighted S&P STARS average of 4.5 (out of 5.0) is above the S&P 500’s average of 3.8.
The S&P GICS Energy Index sector has advanced right up to key trendline resistance off the April 2011 highs, and therefore, we believe there could be a pullback in the near term. In addition, prices have rallied into the beginning of a heavy layer of overhead supply that runs from 540 to 570, and we think this resistance may also keep a ceiling on prices in the short term.
Both WTI and Brent are either at or very near large areas of overhead supply so we think oil prices could pause or correct. In addition, the COT (Commitment of Traders) data is showing high levels of bullishness for crude oil from large speculators (“dumb money”) and high levels of bearishness from commercial hedgers (“smart money”). Relative strength versus the 500 has bounced nicely since June, but the RS line remains in a downtrend off the April 2011 top.
The stocks listed below are all Bullish and priced below their fair value.
| DK | Delek US Holdings Inc. |
| MPC | Marathon Petroleum Corp |
| TSO | Tesoro Corporation |
| CVX | Chevron Corporation |
| STO | Statoil ASA |
| HFC | HollyFrontier Corporation |
| VLO | Valero Energy Corporation |
| SXL | Sunoco Logistics Partners L.P. |
| LGCY | Legacy Reserves Lp |
| CLMT | Calumet Specialty Products |