Trading #1 Energy Stocks: BAS and CVI

There are currently 21 Oil/Energy stocks with a Zacks #1 Rank (strong buy) because of the earnings momentum implied by recent upward revisions to analyst estimates. This #1 Rank is earned by only the top 5% of stocks across 16 major market sectors of which Oil/Energy is one.

Because upward analyst estimate revisions are the strongest leading indicator of earnings momentum, it makes picking top trending energy stocks easy. But what if a stock slips to a Zacks #2 Rank (buy) because the competition between stocks with strong upward revisions is so fierce at the top -- is the performance as strong?

Take a look at the chart of Basic Energy Services (BAS - Snapshot Report), an oilfield services provider, to see how the stock has performed since becoming a #2 Rank on January 19 of this year.

BAS has had a great run since then from $15 to five-year highs above $37.50 (the all-time high from May of 2006 is above $38). And here is the record of the Zacks Rank that would have kept you in this 140% gainer:

BAS Zacks Rank History In Run from $15 to $37

Jan 19 - #2
Apr 26 - #1
May 26 - #2
May 27 - #1
Jun 01 - #2
Jun 09 - #1
Jul 13 - #2
Jul 14 - #1

What drove the Zacks Rank to keep BAS continuously circling among the top 220 of a universe of 4,400 stocks? Two words: earnings momentum. When I first wrote about BAS on May 27 I noted that analyst earnings estimates for 2011 had moved up over 175% in the previous 90 days from $0.49 to $1.35. Here was more of the perspective I gave then...

"The bearish energy forecasts by Goldman Sachs (GS - Analyst Report) and Exxon Mobil (XOM - Analyst Report) in April -- following the crude oil price spike that was driven by revolutions in oil-rich nations -- sent most energy names into profit-taking mode for much of May. This trend sent BAS from above $30 down below $24. But as a #1 Rank stock, that pullback should have been considered a buying opportunity. And the reversal by Goldman analysts on their energy outlook brought out the BAS bulls, sending the stock up 11% on May 25 and another 4% the next day to close above $27."

Since I wrote that in late May, you could have made another $10 per share, or 37%, on BAS in less than two months.

And here's the most recent earnings and growth data for BAS from Zacks, where you can see 2011 estimates are now at $1.88, representing awesome EPS growth of 265%. Even 2012 full estimates are expecting growth over 35%.

Screening for Growth and Momentum

This week we ran a simple screen looking for stocks with a Zacks #1 Rank that also had the following metrics: upward price momentum, market beating relative price strength, and trading in the top third of their 52-week price range.

Two energy stocks that showed up were BAS and CVR Energy (CVI - Snapshot Report). I should note that BAS reports after the close today, so it will be very interesting to see if the earnings surprise potential of this company is all priced into the stock near five-year highs.

CVR Energy, headquartered in Sugar Land, Texas, is an independent refiner and marketer of high value transportation fuels and, through a limited partnership, a producer of ammonia and urea ammonia nitrate fertilizers. The stock has had a mixed earnings picture for most of the year, but became a Zacks #1 Rank on June 21. Here's their profit outlook as of today:

The good news is obviously in this company's earnings growth for 2011. Estimates for 2011 have risen from $2.21 to $3.27 in the past 90 days, and three of the six analysts covering the name have raised their numbers a whopping 50 cents in the past 30 days. They also boosted 2012 expectations from $2.48 to $2.90 in the past month.

The cautionary news might be the leveling-off in expectations from this year to next. So I can't be sure that CVR Energy will become a wealth builder like BAS has been this year. But it's definitely one to keep on your watch list since it is running a forward P/E of only 8 times and the price momentum is so strong.

You can see the screen that found CVR Energy -- and other powerful tools to find market-beating momentum, growth, and value ideas -- on the Zacks Premium Screens page.

Disclosure: No positions in any issues mentioned.

Kevin Cook is a Senior Stock Strategist for Zacks.com

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Read the full analyst report on BAS

Read the full analyst report on XOM

Read the full analyst report on GS

Read the full analyst report on CVI