Friday, May 23, 2025
  • Login
Euro Times
No Result
View All Result
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology
Euro Times
No Result
View All Result

The PXE Energy ETF: The Trend Is Your Friend (NYSEARCA:PXE)

by Euro Times
November 7, 2022
in Stock Market
Reading Time: 7 mins read
A A
0
Home Stock Market
Share on FacebookShare on Twitter


grandriver

As most of you know, the energy sector has been, by far, the top-performing equity sector during the 2022 bear-market (see graphic below). Indeed, other than the Utilities Sector SPDR (XLU), it is the only sector in the green. Given the macro environment – Russia’s invasion of Ukraine and resulting actions that have effectively broken the global energy supply chain, the decision by OPEC+ to cut back on production and defend a higher price range for Brent (an estimated $85-$95/bbl), and the relatively new-found discipline of the domestic shale producers, as well as relative low global storage levels – the outlook going forward remains bullish, in my opinion. That being the case, the trend is your friend, and despite the over-sized returns this year, O&G stocks just might have much more upside. One option investors should consider is diversified exposure to the sector through the Invesco Dynamic Energy E&P ETF (NYSEARCA:PXE). Today, I’ll take a close look at this ETF and see if it may be a good fit in your portfolio.

2022 Equity Sector Performance

Seeking Alpha

Investment Thesis

As stated earlier, the global petroleum macro-environment remains quite bullish in my opinion. Here in the U.S., note that drilled but uncompleted wells (“DUCs”) have dropped dramatically since demand and price destruction caused by the global pandemic forced E&P companies to stop drilling new wells and, instead, focus on completing existing DUCs:

DUCs

EIA

Having a significantly lower DUC inventory, combined with surging inflation in the oil patch and new spending discipline by domestic E&P companies, means that growing oil production is facing some big headwinds. Even drawing down the strategic petroleum reserve (“SPR”) to the lowest level since the early 1980s has done little to bring down the price of oil and gasoline.

That being the case, inflation and high gas prices are likely to be a thorn in the side of consumers (and investors …) for some time to come. As a result, investors need to protect their portfolio with at least a market weighting in energy, or, in my opinion, an over-weight position. Note the current weight of the SPDR Energy ETF (XLE) in the S&P 500 is only 5.6%. Note also that the top-performing stocks in the S&P 500 this year have been dominated by E&P players:

Top-10 S&P500 Performers

SlickCharts.com

Now, let’s take a look at the PXE ETF to see how it has positioned investors for success moving forward.

Top 10 Holdings

The top 10 holdings in the Invesco Dynamic Energy E&P ETF shown below were taken directly from Invesco’s PXE ETF webpage and equate to what I consider to be a moderately concentrated 46% of the entire 30-company portfolio:

PXE ETF Top-10 Holdings

Invesco

The first observation I have is that four of the top 10 holdings also can be found on the top-10 S&P500 performer list (i.e. the previous graphic).

The No. 1 holding with a 5.7% weight is ConocoPhillips (COP). Conoco has become a Permian powerhouse after buying Concho Resources and the majority of Shell’s Permian assets at the bottom of the cycle during the pandemic. COP also has excellent Brent-based production and global LNG assets. The company generated $4.7 billion (or an estimated $3.70/share) of free cash flow in Q3. That led to an 11% boost in the quarterly dividend and an additional $20 billion added to the existing buyback program – which now totals $45 billion – or 27% of the company’s current $164.8 billion market-cap. See COP Drills A Gusher In Q3 for more information on how the company performed in Q3. As explained in that piece, COP has a (base+variable) dividend policy and is estimated to yield 3.6%.

Refiner and midstream operator Marathon Petroleum Corp (MPC) is the #3 holding with a 5.2% weight. Along with No. 4 holding Valero (VLO), refiners equate to an allocation of ~10% within the top 10 holdings. As explained in my recent Seeking Alpha article on Phillips 66 (PSX), refiners have been killing it this year on higher margin (especially for diesel) due to a general lack of refining capacity, the spread between Brent & WTI, and the big discount of WCS feedstock imported from Canada (see PSX: The Spring Has Sprung):

Chart
Data by YCharts

Pioneer Resources (PXD) is the No. 6 holding with a 4.6% weight. PXD has a very shareholder friendly management team and, unlike COP – a company that significantly over-emphasizes share buybacks – puts a priority on returning cash to shareholders in the form of dividends paying out a whopping $25.44/share in dividends this year:

PXD 2022 Dividends

Pioneer Natural Resources

Occidental Petroleum (OXY) is the No. 8 holding and a (the?) top-performing stock in the entire S&P 500 this year. As explained in my recent Seeking Alpha piece, OXY has been a primary beneficiary of Russia’s invasion of Ukraine – and the resulting jump in oil and gas prices – because it enabled the company to greatly accelerate its debt pay-down plan. Indeed, in the first two quarters of 2022 OXY was able to reduce long-term debt by a whopping $8.1 billion. The company was even able to significantly increase its dividend and begin buying back stock. See: Why OXY Is Among The Best Performing Stocks In The S&P500 This Year.

APA Corp (APA), the old Apache, rounds out the top 10 with a 3.2% weight. APA is generally considered to be a gassier play considering its massive Alpine discovery. APA is +71% this year and yields 2%.

Valuation Metrics

Despite the big gain in the fund this year, PXE still trades at a significant discount to the broad S&P 500:

PXE ETF S&P500
P/E Ratio 5.32x 19.66x
Forward P/E Ratio 4.33x 18.01x
Price-to-Book Ratio 2.13x 3.77x
ROE 36.44% 11.8%

Performance

The long-term performance of the PXE ETF is shown below:

PXE ETF Performance

Invesco

As can be seen in the graphic, the three-year average – and even the five-year – average annual returns of the fund are excellent. However, note that the 10-year returns incorporate the “lost decade” when the energy sector was the worst performing sector of the entire market.

The following graphic compares PXE’s price performance with that of some of its peers during the 2022 bull-market in O&G stocks: The SPDR Energy ETF (XLE), the Vanguard Energy ETF (VDE), and the iShares Global Energy ETF (IXC):

Chart
Data by YCharts

PXE comes out on top of the chosen funds.

Risks

The primary risk of investing in the PXE ETF is that the prices of oil and gas and refined products could come down. That could be the result of increased production or due to demand destruction as a result of global economic contraction.

Note that the PXE does not hold the major integrated oil companies like Exxon and Chevron. That being the case, the portfolio is not nearly as exposed to the downstream (think chemicals and refining) as compared to many energy funds. That strategy works well during oil and gas price up-cycles, but not so well on down-cycles where downstream assets can help offset weakness in upstream.

While the 0.63% expense fee is quite stiff, you can’t argue with the fund’s out-performance.

Summary and Conclusion

Holding many of the top domestic O&G producer and refiners, the PXE ETF has been a great place to have had your money during the 2022 bear market. That said, it’s my belief that the macro-environment going forward is bullish and that the “trend is your friend.” Meantime, the ETF is still considerably undervalued in comparison to the S&P 500 and on an ROE basis.

Bottom line: Investors getting whacked by “pain at the pump” and inflationary pressures across the board, not to mention getting mauled by the 2022 bear-market – had better considering establishing – or increasing – exposure to the energy sector moving forward. PXE is a buy.



Source link

Tags: EnergyETFfriendNYSEARCAPXEPXETrend
Previous Post

Head of US Nuclear Forces Claims Ukraine ‘Just a Warmup’ for ‘Very Long’ Struggle With Russia, China

Next Post

Toxic ‘Call of Duty: Modern Warfare II’ players will be muted in voice and text chat

Related Posts

PGIM Jennison Rising Dividend Fund Q1 2025 Commentary (Mutual Fund:PJDZX)

PGIM Jennison Rising Dividend Fund Q1 2025 Commentary (Mutual Fund:PJDZX)

by Index Investing News
May 23, 2025
0

PGIM Investments, a subsidiary of PFI, is an funding adviser and the funding supervisor to all PGIM US open-end funding...

Turning Surplus Attire into Sustainable Success

Turning Surplus Attire into Sustainable Success

by Index Investing News
May 22, 2025
0

The model commerce is at a crossroads. Quick improvement cycles and rising return prices are fueling an unprecedented surplus of...

Dorian LPG Ltd. (LPG) This fall 2025 Earnings Name Transcript

Dorian LPG Ltd. (LPG) This fall 2025 Earnings Name Transcript

by Index Investing News
May 22, 2025
0

Dorian LPG Ltd. (NYSE:LPG) This fall 2025 Outcomes Conference Identify May 22, 2025 10:00 AM ET Agency Members Ted Youthful...

Our Green Zone Buy Signal Of April 7th Is Rapidly Winding Down

Our Green Zone Buy Signal Of April 7th Is Rapidly Winding Down

by Michael James McDonald
May 22, 2025
0

This text was written byComply withMichael James McDonald is a inventory market forecaster, writer and former Senior Vice President of...

Celestica – Lastly An AI Play That Is Not Buying and selling At Too Elevated Valuations (NYSE:CLS)

Celestica – Lastly An AI Play That Is Not Buying and selling At Too Elevated Valuations (NYSE:CLS)

by Index Investing News
May 22, 2025
0

This textual content was written by My predominant house of curiosity is algorithmic shopping for and promoting and shopping for...

Costamare Bulkers: Interesting Opportunity. Management Has To Perform Long Term (CMDB)

Costamare Bulkers: Interesting Opportunity. Management Has To Perform Long Term (CMDB)

by Melissa Tucker
May 22, 2025
0

This text was written byComply withWith an expert background spanning a number of industries, from logistics, development to retail, I...

Next Post
Toxic ‘Call of Duty: Modern Warfare II’ players will be muted in voice and text chat

Toxic 'Call of Duty: Modern Warfare II' players will be muted in voice and text chat

GOP Leader McCarthy Again Gets Squishy When Asked About Impeaching Biden

GOP Leader McCarthy Again Gets Squishy When Asked About Impeaching Biden

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

India to push FATF to add Pakistan to grey list again, source says

India to push FATF to add Pakistan to grey list again, source says

May 23, 2025
Xiaomi XRING O1 Die Shot Reveals Details of 10-Core CPU, 6-Core NPU and More

Xiaomi XRING O1 Die Shot Reveals Details of 10-Core CPU, 6-Core NPU and More

May 23, 2025
Stay focused on domestic fundamentals; no need to react to every US macro move: Sandip Sabharwal

Stay focused on domestic fundamentals; no need to react to every US macro move: Sandip Sabharwal

May 23, 2025
PGIM Jennison Rising Dividend Fund Q1 2025 Commentary (Mutual Fund:PJDZX)

PGIM Jennison Rising Dividend Fund Q1 2025 Commentary (Mutual Fund:PJDZX)

May 23, 2025
Bulls Eye .50 With Bullish Tailwinds In Play

Bulls Eye $2.50 With Bullish Tailwinds In Play

May 23, 2025
Haiti slams ‘xenophobic’ deportation drive by Dominican Republic

Haiti slams ‘xenophobic’ deportation drive by Dominican Republic

May 23, 2025
Euro Times

Get the latest news and follow the coverage of Business & Financial News, Stock Market Updates, Analysis, and more from the trusted sources.

CATEGORIES

  • Business
  • Cryptocurrency
  • Finance
  • Health
  • Investing
  • Markets
  • Politics
  • Stock Market
  • Technology
  • Uncategorized
  • World

LATEST UPDATES

India to push FATF to add Pakistan to grey list again, source says

Xiaomi XRING O1 Die Shot Reveals Details of 10-Core CPU, 6-Core NPU and More

  • Disclaimer
  • Privacy Policy
  • DMCA
  • Cookie Privacy Policy
  • Terms and Conditions
  • Contact us

Copyright © 2022 - Euro Times.
Euro Times is not responsible for the content of external sites.

No Result
View All Result
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology

Copyright © 2022 - Euro Times.
Euro Times is not responsible for the content of external sites.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In