In the midst of earnings season, stock markets are no strangers to volatility. The first week saw mixed results, with some industry leaders beating estimates while others disappointed the Street on weak revenue numbers. Week two was slightly more upbeat, with some major financial and energy companies –such as Morgan Stanley and Halliburton– crushed their estimates. Along with these two industry bellwethers, Microsoft reported positive earnings, while Johnson & Johnson reported a dismal outlook for the remainder of 2010.
This week had a special focus on the defense and energy industries with market bellwether Boeing and embattled oil giant BP reporting earlier this week. These less-than-stellar reports have put another large company in the spotlight; Exxon Mobil (XOM). After the second quarter of 2010, Exxon was the largest firm by market capitalization in the world and as such, remains a great barometer of the health of the world’s economy. Earlier today, the company disclosed its Q2 earnings which came in at $1.60 a share on revenues of $92.5 billion. The oil giant was expected to report EPS of $1.47 and revenues of $96.9 billion, which would have been a 30% increase in revenues from the same quarter of 2009. Though Exxon missed their revenue estimates, they increased their profit 91% from the first quarter of 2010 despite broad weakness in oil prices after the spill in the Gulf. Overall, the earnings were good but not stellar; missing the revenue estimate is the only thing that held the company back from blowing the estimates away. The company’s share price reacted positively to the news; shares of XOM were trading up 0.7% in late-morning trading at about $61.30 [see Energy ETFs: Six Very Different Ways To Play].
Although oil prices are not at their pre-recession levels, they are still significantly higher than they were at the beginning of May, which has greatly helped Exxon in the later part of the quarter. The company, which is well diversifed across the world, dodged a major bullet by having limited exposure to the Gulf region allowing XOM to prosper while one of its main rivals faltered. This trend looks likely to continue in the near future as Exxon further expands its natural gas operations with its purchase of XTO late last year. Natural gas is an industry that many forecast will continue to grow in the coming decades and Exxon already has a plan to be a major part of it which could send the company’s shares higher even if oil prices do not crack the $100/bbl. mark anytime soon [see The Definitive Oil ETF Guide: List of Oil ETFs and More].
iShares Dow Jones U.S. Energy Sector Fund (IYE)
IYE seeks to replicate the Dow Jones U.S. Oil & Gas Index, which measures the performance of the energy sector of the U.S. equity market. Exxon Mobil comes in as the top holding, making up a hefty 23.1% of the entire ETF. Chevron (11.7%) and Schlumberger (5.9%) are the next highest holdings of the fund [see all of IYE's holdings here]. Overall, the fund focuses on giant (51%) and large (34%) capitalization companies, with a minority of the remaining assets spread across smaller market cap levels. IYE has been down roughly 6.5% this year but still pays a dividend of 1.5% [see more fundamentals of IYE here].
iShares S&P Global Energy Index Fund (IXC)
This ETF tracks the S&P Global Energy Sector Index, which measures the performance of the energy sector of global equity markets. The fund’s top three holdings are Exxon Mobil (14.8%), Chevron (6.9%), and Total SA (5.4%). Holding 91 securities, IXC is unique in that is has half U.S. domestic and half international exposure, allowing investors to make a more global play. From a country exposure perspective, this ETF primarily allocates to the U.S. (50.9%), United Kingdom (16.4%), Canada (12.4%), and France (5.8%). Though the fund has lost just over 9% on the year it manages to pay out a handsome dividend yield of nearly 7.5% [see all of IXC's fundamentals here].
SPDR Select Sector Fund (XLE)
State Street’s XLE makes its way onto the list of the top 25 largest ETFs in terms of assets under management by tracking the Energy Select Sector Index. This index includes companies from the following industries: oil, gas & consumable fuels and energy equipment & services. Exxon Mobil is the top holding of this fund making up 19.2% of the total assets. Along with Exxon, names like Schlumberger, Apache, and Halliburton make an appearance in the top ten holdings of this ETF. XLE allocates the majority of its assets to giant and large cap firms and stays completely in the U.S. for its energy exposure.
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Disclosure: No positions at time of writing.
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