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Earnings Season Proves How Smart We Are And Suggests A Long Term Investment

If you need proof that you, as an energy investor, are a smart cookie, it seems you need look no further than this season’s US corporate earnings that have unfolded over the last month. According to Factset.com, 82% of US companies in the energy sector that have reported Q1 2014 earnings have beaten estimates. In that month, the Vanguard Energy sector ETF (VDE) is up nearly 7% and has gained over 15% in the last three months. That is pretty impressive and explains why we are all, as people who see potential in the energy business, feeling pretty good about ourselves.

Before you pull a neck muscle reaching back that far to pat yourself on the back, though, consider two other facts from that same report. Energy companies are also reporting the largest average decline in Year on Year earnings of any sector at -4.1%, and overall revenues are flat on the same basis. This seeming disconnect is easily explained; analysts, in their wisdom, have overestimated the decline in the industry but still, “not sinking as fast as we thought” is hardly a resounding endorsement of the US energy industry.

So, which is it? Are we all geniuses for being interested in a booming market, or mugs for being sucked into a bubble based on perception rather than reality? Despite that year on year decline, energy is still a very profitable industry, the most profitable in the world, in fact, according to this Sageworks study. As a traditionalist who believes that profit counts,…




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