As far as overall results of the Oil/Energy sector is concerned, it displays a mixed trend.
For the 32% industry components that have come out with their Q1 reports -- comprising 21.0% of the sector market capitalization -- earnings rose 13.7% during the March quarter, a substantial decline from the 22.8% increase witnessed in the previous quarter. However, there was some improvement on the revenue front, which was up 9.3% in the first quarter as against a gain of 8.8% in the fourth quarter.
The sector has also been erratic in terms of beat ratios (percentage of companies coming out with positive surprises). The earnings "beat ratio" was an impressive 71.4%, but the revenue "beat ratio" was underwhelming, at 42.9%.
For more information about earnings for this sector and others, please read our Earnings Trends report.
Considering the turbulent market dynamics of the energy industry, we always advocate the relatively low-risk conglomerate business structures of the large-cap integrateds, with their fortress-like balance sheets, ample free cash flows even in a low oil price environment and growing dividends.
Our preferred name in this group remains Chevron Corp. (NYSE:CVX-Free Report). Its current oil and gas development project pipeline is among the best in the industry, boasting large, multiyear projects. Additionally, Chevron possesses one of the healthiest balance sheets among its peers, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.
While all crude-focused stocks stand to benefit from rising commodity prices, companies in the exploration and production (E&P) sector are the best placed, as they will be able to extract more value for their products. In particular, we suggest exposure to small-cap, undervalued E&P players like Callon Petroleum Co. (NYSE:CPE-Free Report), Miller Energy Resources Inc. (NYSE:MILL-Free Report) and Abraxas Petroleum Corp. (Nasdaq:AXAS-Free Report), which enjoy the benefits of crude oil price leverage.
One may also capitalize on this opportunity with the related business sector of energy equipment service providers. Our top pick in this space is Cameron International Corp. (NYSE:CAM-Free Report). This oil drilling equipment maker boasts of a diversified product portfolio, specialty service capabilities and proprietary technological expertise. Other positives for Cameron include a strong backlog position, growing international operations and a favorable outlook for subsea activity levels.
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