CHICAGO, Aug. 30, 2011 /PRNewswire/ -- Zacks.com announces
the list of stocks featured in the Analyst Blog. Every day the
Zacks Equity Research analysts discuss the latest news and events
impacting stocks and the financial markets. Stocks recently
featured in the blog include: National Oilwell Varco (NYSE:
NOV), Cabot Oil & Gas (NYSE: COG), Precision
Drilling (NYSE: PDS), Oil States International (NYSE:
OIS) and Complete Production Services (NYSE: CPX).
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Here are highlights from Monday's Analyst Blog:
Trading Oil Via Strong Energy Stocks
Crude oil is a primary barometer of risk appetite and as such it
can confirm or deny the US economy's potential to slip into
recession. In the 2008-09 recession and corresponding market
meltdown, oil touched $35, as
ridiculously cheap a price as some fantastic companies were trading
for.
During the heightened volatility of the first week of August,
when the S&P 500 touched 1,100, WTI hit $75 and quickly rebounded back above $80. If you believe that the chance of a mild
recession has been priced-in to equities, you may equally consider
that crude oil is also signaling the economy is still in good
shape.
And for broader perspective, consider that energy in general is
in a long-term secular bull market, as "peak oil" may not be
priced-in. In other words, it's quite possible that the average
price of oil over the next decade will be well over $100.
Granted this is driven both by population growth in Emerging
Markets and a weaker dollar, in addition to supply forecasts. And
economic cycles will still impact the price regardless of long-term
demand drivers. But the story remains a big picture trend without
many meaningful alternatives.
Trading #1 Energy Stocks
In the second week of August, I mentioned this story as the
fundamental backdrop for picking strong energy stocks while they
were on sale. In "Energy Stocks to Buy if Oil Bottoms at $75" I
highlighted seven names that all carried the Zacks #1 Rank (strong
buy) for their earnings momentum.
It's a good time to revisit that list and see which stocks have
done well and which ones are struggling. All but one have kept the
coveted Zacks #1 Rank. And it's worth noting that more than half of
the names are oilfield service companies, providing the "guns and
bullets," as I like to call it, to E&P companies and refiners
in the oil wars.
National Oilwell Varco (NYSE: NOV): This big dog of the
oilfield services patch hit $60 on
August 8 and rallied a week later
with the market above $71. The retest
of the lows was encouraging as the stock did not make new lows
August 23. It now sits above
$65 during Monday's rally and seems
to be tracking the broad market well.
Cabot Oil & Gas (NYSE: COG): Cabot swung from
$58 to $74 rebounding off of the
first leg down, and has shown some remarkable strength on the next
pullback as it held above $65 and as
of lunch time today is pushing above $72.50.
Precision Drilling (NYSE: PDS): This one did make new
lows below $11 on the second leg
down, but is trading now above $13.
The last run up was capped by its 50-day moving average around
$14.50.
Oil States International (NYSE: OIS): Same story here as
PDS... new lows during the week of August
22 near $57, but today back
above $63. The 200-day moving average
just above $71 was resistance on the
rally the week of the 15th.
Complete Production Services (NYSE: CPX): Another one
that made new lows in the $24 handle,
today trading above $28 and targeting
its 200-day moving average just above $30, which it was able to close above on
August 15.
Stick with the Long-Term Energy Trend
My view of playing these energy stocks is to buy the strong ones
on dips. It helps to have a view of the economy that tells you
where you are wrong and a recession looks inevitable, or if stocks
are at least due for another fear-driven discounting. Meanwhile,
the price of WTI crude can tell you a lot too. I'm watching the
$80 level as make or break for a
recession.
Besides focusing on smaller companies like these with earnings
momentum, you also expose yourself to buy-out potential. With
energy assets in ever increasing demand, both American and Chinese
mega-cap companies will likely continue to gobble up smaller
players.
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