Zacks Industry Rank Analysis is written by Dirk Van Dijk, CFA, Chief Equity Strategist, Zacks.com.
Hitting a Gusher
If there ever was an industry that was global in reach, the oil industry is. While the industry is one of the largest in the world by revenue and market capitalization, the six industries that are showing up well in the Zacks rank are not particularly huge in terms of number of firms, ranging from having 3 firms up to having 18 firms in them. The total market capitalizations of the firms though, are huge -- we are talking about some of the largest firms in the world here.
Not surprisingly given the dynamics of the Zacks industry rank, the two at the top are the two smallest, they are also both composed of foreign firms. The Emerging Market Integrated "industry" has just five firms, but is in a tie for 9th place, up one spot from last week with an unchanged average rank of 2.20. Close on its heels is the International Oil Specialty "industry" in 14th place and an average rank of 2.23, a big improvement from the 3.00 average rank last week and up 94 spots on the list. With only three firms in the industry, it is fairly easy for the group to have a big change in average rank and thus its place on the list.
While the firms in those two groups might not be household names, the same cannot be said of the U.S. Integrated Oil industry, or the International Integrated Oil industry, with eight and 17 firms respectively. The Domestic Integrated firms are in 19th place with an average rank of 2.38, three places better than last week when the average rank was 2.50. Tied with the Internationals in 23rd place are the Oil Refiners with average scores of 2.47, both of which saw a 10 spot improvement as the average rank fell from 2.53. Both of those industries have 17 members.
Filling out the list is the largest (by number of firms) "industry," the Oil Machinery and Equipment group, in 47th place, a two spot deterioration but an unchanged average rank of 2.67.
In these six industries, 20.5% have Zacks #1 Ranks and 22.1% have Zacks #2 Ranks. There is a wide range of market capitalizations to chose from on the list, going from Exxon (NYSE: XOM) and PetroChina (NYSE: PTR), down to true microcaps. Valuations are for the most part very compelling with nine of the firms sporting single digit P/E's based on 2011 earnings.
Also, the estimates on these firms are rising, and an estimate in motion tends to stay in motion, so the true P/E on these firms might be lower than it looks based on current estimates.
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