Energy stocks vs. financial stocks

Filed under: Federal Natl Mtge (FNM), Wachovia Corp (WB)

By Michael Vodicka, Zack's Investment Research.

In spite of the recent selloff in the energy sector, most of these stocks are still trading with big gains on the year. This stands in sharp contrast to stocks from the financial sector, which have suffered steep losses as big banks have been forced to liquidate assets and raise capital to support their balance sheets.

Because these two groups of stocks have functioned as polar opposites during this stretch, it has provoked many conversations about which is currently the more attractive investment destination; high-flying energy stocks or beaten down financial stocks.

Its All About Earnings

When you take a look at the earnings picture, this argument becomes very one-sided.

Crude prices have recently dipped lower, but they are still very high when compared to historical norms, and this will translate into big earnings for energy companies. We can see this dynamic expressed through analyst estimates.

Encore Acquisition Co. (NYSE: EAC) shares are still trading up sharply on the year in spite of the stocks recent sell off, but estimates have risen in tandem with the stock price, with the current-year estimate advancing to $5.07 per share per share from $3.63 per share 90 days ago. This kind of earnings power provides plenty of fundamental strength for more share appreciation.

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