Thursday’s ETF To Watch: PowerShares Dynamic Oil Services Fund (PXJ)

by on February 3, 2011 | ETFs Mentioned:

Although many investors have been focused in on oil markets and major oil producers such as ExxonMobil this week, many of the oil service companies have also been surging as well. Broad ETFs tracking this market segment have risen by more than 4% in just three days of trading, as many investors have bought up these companies in anticipation of a wave of new projects thanks to near $100/bbl. oil and continued tension in the Middle East, two factors which make excess exploration more likely. This trend looks likely to boost investor demand for oil service firms and increase expectations for their full year outlook since no matter how successful the exploration operations are, extra drilling for oil will boost the need for various auxiliary services.

While Halliburton and Schlumberger reported solid earnings a few weeks ago, it will be especially interesting to see how another giant in the field, National Oilwell Varco (NOV), does given the escalation in the Middle East. The Houston-based company is scheduled to report earnings before the bell later today and investors in the oil service space will be very interested to hear the company’s outlook for the new year, especially given the recent developments in the industry. The firm is projected to report earnings of $0.96 per share on sales of $3.1 billion for the most recent quarter, figures that are exactly the same as what the company reported in the year ago period. However, the company will likely be able to make up for this lack of growth by posting solid guidance and by letting investors know how it plans to take advantage of rising oil prices around the world [see Finding The Right Oil ETF For A Crude Rally].

One fund that looks to be in focus given this crucial earnings report is the PowerShares Dynamic Oil Services Fund (PXJ) which allocates its top spot to the in-focus NOV at 5.9% of the fund’s total holdings.  This top holding to the relatively small NOV is a result of PXJ’s benchmark the Dynamic Oil & Gas Services Intellidex Index. The Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors and can sometimes deviate from the weightings that cap weighted funds offer to investors [see The Definitive Oil ETF Guide].

Nevertheless, all investors in the oil service industry will likely be paying close attention to NOV’s report later today in order to see just what the industry believes can come about thanks to higher oil prices and tensions in one of the world’s most important energy producing regions. Should the company manage to surprise on the upside, look for NOV to help push PXJ higher on the day. If, however, NOV is unable to impress investors with its plans for the new year, look for many to exit the company for others in the industry that have been able to produce more robust levels of growth both in terms of earnings and revenues [see holdings of PXJ here].

[For more ETF ideas sign up for our free ETF newsletter.]

Disclosure: No positions at time of writing.