Energy ETFs in Focus on Big Oil Q3 Earnings Beat - ETF News And Commentary

The energy sector has been out of investors' favor in recent months as oil prices tumbled 24% from a high of $107.26 per barrel recorded in June. The boom in U.S. oil production and waning global demand took a toll on the commodity price and the energy stocks.

However, better-than-expected earnings from two U.S. oil giants – Exxon Mobil

and Chevron

– on Friday before the opening bell spread bullishness in the entire sector. Both firms bucked the trend of falling profits from large international oil majors like BP plc

, Total SA

and ConocoPhillips

amid lower oil prices and strongly beat on the bottom line (read:

).

While these firms witnessed revenue decline on an annual basis and are still struggling with shrinking production volumes, low raw material costs boosted refining and chemical operations that offset the sagging oil and gas production business.

The largest U.S. oil company,

, reported earnings per share of $1.89 that strongly outpaced the Zacks Consensus Estimate of $1.75 and the year-ago earnings of $1.79. Total revenue slipped 4.3% year over year to $107.5 billion but was well ahead of the Zacks Consensus Estimate of $101 billion.

Oil and gas production fell 4.7% to the equivalent of 3.83 million barrels a day, representing the lowest level in almost five years. Despite this, the company is on track to produce 4 million barrels of oil per day by the end of this year.

Earnings at

, which trails Exxon Mobil, came in at $2.95, outpacing the Zacks Consensus Estimate of $2.54 and improving from the year-ago earnings of $2.57. Revenues dropped 6.5% year over year to $54.68 billion and were much below our estimate of $56.66 billion. Oil production fell nearly 1% to the equivalent of 2.57 million barrels per day in the last quarter.

Driven by a solid earnings beat, shares of both XOM and CVX climbed 3.4% at the close on Friday trading session on elevated volume. Both stocks currently have a Zacks Rank of #3 (Hold) and fall in the poor industry with their

in the bottom 15%. This suggests some pain in store for these oil behemoths.

This is especially true, as profits from these firms might suffer in the ongoing quarter given that the oil prices slid to lows not seen in four years in early October. If the price continues to decline or remain at lower levels, then refining business might not make up for the lost oil and gas business profitability (read:

).

Given this, ETFs having large allocations to these big oil companies will be in focus in the coming days. Below, we have highlighted three such ETFs that gained about 2% on the day of the earnings releases. Investors should carefully watch the movement in these funds and should tap the opportunity rising from the surging stock price of these two companies or avoid if they drag them down.

This ETF tracks the Dow Jones U.S. Oil & Gas Index, giving investors exposure to the broad energy space. The fund holds 94 stocks in its basket with AUM of over $1 billion and average daily volume of more than 888,000 shares. The product charges 43 bps in fees per year from investors.

Exxon Mobil and Chevron occupy the top two positions in the basket and take the bigger chunk of assets at 22.04% and 12.29%, respectively. From a sector perspective, oil & gas producers make up for nearly three-fourths share while oil equipment, services and distribution takes the remainder. The fund has a Zacks ETF Rank of 4 or ‘Sell' rating with a Medium risk outlook (read:

).

This fund has accumulated $128.9 million in its asset base since its debut a year ago. The fund follows the MSCI USA IMI Energy Index, holding 160 stocks in its basket. Out of these, XOM and CVX occupy the top two positions at 21.9% and 12.04%, respectively. In terms of industrial exposure, oil, gas & consumable fuels accounts for nearly 80% of the portfolio while energy equipment & services take the remainder.

The product is the low cost choice in the energy space, charging just 12 bps in annual fees. Volume is good, trading in 118,000 shares a day. The ETF has a Zacks ETF Rank of 3 or ‘Hold' rating with a Medium risk outlook.

This fund manages nearly $3.4 billion in asset base and provides exposure to a basket of 163 energy stocks by tracking the MSCI US Investable Market Energy 25/50 Index. The product sees a solid volume of around 228,000 shares and charges 14 bps in annual fees. Exxon and Chevron are the top two firms with 20.5% and 11.5% allocation, respectively (see:

).

Though the product is skewed toward the integrated oil & gas sector with 37.2% of assets, exploration and production, and equipment services provide a nice mix in the portfolio with double-digit exposure. VDE has a Zacks ETF Rank of 3 with a Medium risk outlook.

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