FENY: Limited Downside Risk And Strong Earnings Growth Potential For 2025

seekingalpha2024-07-17

dabldy/iStock via Getty Images Introduction We last covered Fidelity MSCI Energy Index ETF (NYSEARCA:FENY) in May 2020. At that time, the world was in the midst of the pandemic and demand for energy ...

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At that time, the world was in the midst of the pandemic and demand for energy ...</p>\n\n<a href=\"https://seekingalpha.com/article/4704365-feny-limited-downside-risk-and-strong-earnings-growth-potential-for-2025\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>FENY: Limited Downside Risk And Strong Earnings Growth Potential For 2025</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nFENY: Limited Downside Risk And Strong Earnings Growth Potential For 2025\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-17 00:31 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4704365-feny-limited-downside-risk-and-strong-earnings-growth-potential-for-2025><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>dabldy/iStock via Getty Images Introduction We last covered Fidelity MSCI Energy Index ETF (NYSEARCA:FENY) in May 2020. At that time, the world was in the midst of the pandemic and demand for energy ...</p>\n\n<a href=\"https://seekingalpha.com/article/4704365-feny-limited-downside-risk-and-strong-earnings-growth-potential-for-2025\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"FENY","symbol_name":"Fidelity MSCI Energy Index ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4704365-feny-limited-downside-risk-and-strong-earnings-growth-potential-for-2025","article_id":"2452456789","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1410284315/image_1410284315.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2452456789","pubTimestamp":1721147467,"columns":[],"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"dabldy/iStock via Getty Images Introduction We last covered Fidelity MSCI Energy Index ETF (NYSEARCA:FENY) in May 2020. At that time, the world was in the midst of the pandemic and demand for energy w","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"FENY":"Fidelity MSCI Energy Index ETF"},"translate_title":"FENY：2025年下行风险有限，盈利增长潜力强劲","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"FENY":1},"content_text":"dabldy/iStock via Getty Images Introduction We last covered Fidelity MSCI Energy Index ETF (NYSEARCA:FENY) in May 2020. At that time, the world was in the midst of the pandemic and demand for energy was at its historical low. In our last article, we pointed out that energy demand would eventually recover but the ride would likely be bumpy. It has been more than 4 years since we last analyzed FENY and the macroeconomic environment has changed swiftly. It is time for us to analyze the fund again and provide our recommendations. ETF Overview Fidelity MSCI Energy Index ETF (FENY) has a portfolio of mostly large-cap U.S. energy stocks. The fund has a low expense ratio of 0.08%. Other funds such as The Energy Select Sector SPDR® Fund ETF (XLE) charge 0.09% annually. FENY has walked out of the low reached in 2020 and its fund price is on a steadily rising trend in the past few years. The fund should benefit from a recovery in the energy sector in 2025 as earnings growth is expected to turn positive towards double-digits growth in 2025. Its current valuation is also inexpensive relative to its historical average. Therefore, we do expect a meaningful rebound in 2025 and have a buy rating on the fund. However, given the sector's nature of high cyclicality, this fund is not suitable for long-term investors. Fund Analysis FENY's fund price continued to trend higher since the low in 2020 Unlike the broader market that saw a significant decline in 2022 and reached a cyclical low in October 2022, FENY's fund price has been steadily moving up in the past 4 years. As can be seen from the chart below, FENY's fund price climbed from as low as $6 per share in 2020 to more than $25 per share today. However, most of the gain was between 2020 and 2022. Since the beginning of 2023, FENY only delivered a total return of 10.1%. In contrast, the S&P 500 index delivered a total return of 49.8% in the same period. YCharts Strong earnings growth expected FENY's lackluster return in the past two years may soon come to an end as the energy sector is expected to see strong earnings growth in 2025. Below is a chart that shows the average annual earnings growth forecasts for energy stocks in the S&P 500 index. Since the majority of FENY's portfolio consists of large-cap stocks, we think the chart below will also give us a good indication of what will happen to the fund's performance in the upcoming year. As can be seen from the chart below, energy stocks are expected to grow at an annual earnings growth rate of 10.8%. This is much better than the expected decline of 5.2% in 2024 and the significant decline in 2023. A positive earnings growth rate is also expected in 2026. As the chart below shows, the sector's average earnings growth in 2026 is on a rising trend. Yardeni Research However, energy stocks are still not the best-performing sector among other sectors While we noted energy stocks will see much better earnings growth than the past two years, its forecasted growth rate is not the best among other major sectors. As can be seen from the chart below, the energy sector in the S&P 500 index is only expected to be better than the financials, utilities, and consumer staples sectors. Its anticipated 2025 average earnings growth rate is still expected to trail the growth rates of healthcare, information technology, real estate, and materials sectors by a big margin. The energy sector is also not expected to outperform the average of all sectors. As can be seen from the chart, the energy sector's 2025 annual earnings growth rate of 12.3% is lower than the S&P 500 index's earnings growth rate of 15.4%. In addition, investors should keep in mind that this sector is very cyclical, and are often inconsistent in its earnings growth rate year by year. As the above chart shows, its consensus 2026 earnings growth is expected to decelerate to only 2.9%. MacroMicro Attractive Valuation FENY is trading at a very attractive valuation relative to the historical average. Below is a chart that shows the average forward P/E ratio of energy stocks in the S&P 500 index. As can be seen from the chart below, the energy sector is currently trading at a forward P/E ratio of only 11.7x. This is towards the low end of its historical P/E range in the past three decades. Therefore, we think downside risk is likely limited. Yardeni Research Investor Takeaway We think FENY is trading at an attractive valuation and we are willing to give it a buy rating because of its limited downside risk and the strong earnings growth potential in 2025. However, given the nature of the cyclicality of this sector, we think this fund is not suitable for long-term investors.  Additional Disclosure: This is not financial advice and that all financial investments carry risks. 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