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How Will Oil Service ETFs Perform This Reporting Season?

Sanghamitra Saha

Oil as a commodity suffered a great deal in November. The liquid commodity was in a freefall in mid-November, marking the “longest losing streak in history.” Both Brent and WTI crude slipped into the bear market territory (read: Brent in Bear Market: 4 Country ETFs to be Cautious About).

The entire chaos — which pulled oil down from a four-year high to a bear market in just six weeks — was created by the less-than-harsher U.S. sanctions on Iran’s energy sector.

Needless to say, such an upheaval in the oil patch is enough to put oil services companies in trouble. This makes it important to track the big oil services companies due to report earnings in a few days.

Two bellwethers Schlumberger Limited (SLBand Halliburton Company (HAL) are likely toreport this month. Let’s take a look if the companies are likely to post an earnings beat this time around.

Inside Our Surprise Prediction

According to our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while a Zacks Rank #4 or 5 (Sell rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Schlumberger is likely to report earnings on Jan 18 before market open. At the time of writing, the stock has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of -2.33%.

Zacks Rank #5 Halliburton Company is likely to report on Jan 22, before market open. It has an Earnings ESP of +2.31%. It suggests that analysts have grown bullish on its near-term earnings potential. When you combine this positive Earnings ESP with the stock's Zacks Rank #5, it lowers the predictive power of ESP. Both stocks belong to a bottom-ranked Zacks Industry (bottom 10%).

ETFs in Focus

Given the expectation of a moderate-to-downbeat earnings season, investors may want to track oil-services ETFs with considerable allocation to SLB and HAL before their respective releases. Below we highlight a few (see all energy ETFs here):

iShares US Oil Equipment & Services ETF (IEZ)

This ETF invests about $183.2 million of assets in 40 securities, focusing solely on the energy world. SLB takes up the first position here with 16.56% of holdings. Generally, when one stock accounts for about 15% of an ETF's weight, its individual performance decides much of the fund’s price movement. HAL holds the second position with about 10.59% of total assets.

Market Vectors Oil Services ETF (OIH)

OIH invests $1.21 billion of assets in 25 holdings and devotes as much as 20% of the portfolio weight to SLB, followed by 15.6% in HAL (read: Oil Heads for Biggest 2-Year Weekly Gain: 5 Top ETFs, Stocks).

Energy Select Sector SPDR Fund (XLE)

XLE invests $13.93 billion of assets in 30 stocks. The fund puts 4.76% of the portfolio weight in SLB.     

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