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4 Top Oil Stocks with Winning Streaks at Earnings Season
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So far, 2016 has not been smooth sailing for the U.S. oil futures. The commodity has been very volatile this year with prices recovering from a 12-year low of $26.21 a barrel in February to $50/barrel mark in early June, slipping again to under $40 only to rally toward $50 once more.
Factors at Play
While factors like Canadian wildfires, Nigerian outages/disruptions, production issues in Venezuela and a strike by Kuwaiti oil workers contributed to jump in prices earlier this year that saw the benchmark recover significantly, these issues have largely vanished from the market. As of now, overproduction of crude and a glut of refined products keep the commodity under pressure.
At over 520 million barrels, current crude supplies are up 14% from the year-ago period and are at the highest level during this time of the year. As it is, improvement in oil fundamentals remain fragile with the existing stocks of refined product inventories – gasoline and distillate – remaining at their maximum seasonal levels in at least 20 years despite healthy demand. Piling on the misery is the Baker Hughes report revealing a steady rise in the U.S. oil rig count and pointing to the resurgence in shale drilling activities.
A number of major industry players, including Exxon Mobil Corp. (XOM - Free Report) , Royal Dutch Shell plc and BP plc (BP - Free Report) have reported sub-standard second-quarter numbers as lower energy prices take a toll.
Q2 Flashback
A look back at Q2 earnings season reflects that the overall results of the Oil/Energy sector were again very weak, dragging down the aggregate growth picture for the S&P 500 index.
Despite an impressive recovery, crude prices stayed under $50 – about half the level of two years ago – and far below the breakeven price for many energy companies. Moreover, most oil producers have been churning out ‘black gold’ at full throttle, thereby letting the commodity slip.
Earnings fell by a whopping 78.9% year over year, following a 108.6% drop witnessed in the previous quarter. Things have been bad on the revenue front too, which was down 24.4% in the June quarter after declining 29.3% in the previous three-month period.
Beating the Odds
However, like always, there were some companies that trumped these challenges and stood out with great earnings surprises. While not every company that posts positive earnings surprises witnesses a gain in stock price, studies show that on an average, earnings beats drive strong returns in share prices for several weeks following the report. Picking out and investing in such stocks can boost your portfolio returns.
Earnings Surprise History Is Important
With a few energy firms outperforming Q2 estimates, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver attractive returns.
However, a history of positive earnings surprise generally works as a catalyst in sending a stock higher. It indicates the company’s ability to surpass the estimates. So, investors take it in their consideration while betting on the stock with the expectation that the company will do the same trick to outpace the estimates in the upcoming release.
The Zacks Rank, which justifies a company’s strong fundamentals, can also come in really handy.
Finally, the chosen ones have VGM Score less than or equal to B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential.
4 Stocks to Invest In
Independence Contract Drilling Inc. (ICD - Free Report) : Houston, TX-based Independence Contract drilling offers land drilling services for oil and natural gas producers primarily in the U.S.
Zacks Rank: #2
VGM Score: ‘B’
Average EPS Surprise in the Last 4 Quarters: 48.77%
McDermott International Inc. : Incorporated in 1959, Houston, TX-based McDermott International is an engineering and construction company, solely focused on the offshore oil and gas business.
Zacks Rank: #2
VGM Score: ‘A’
Average EPS Surprise in the Last 4 Quarters: 481.54%
NGL Energy Partners L.P. (NGL - Free Report) : It is a limited partnership operating a vertically integrated propane business with three operating segments: retail propane; wholesale supply and marketing; and midstream.
Zacks Rank: #1
VGM Score: ‘B’
Average EPS Surprise in the Last 4 Quarters: 228.54%
Subsea 7 S.A. (SUBCY - Free Report) : London-based Subsea 7 is a leading oilfield contractor engaged in the designing, procurement, building, installation, and servicing of a range of offshore surface and sub-surface equipment for the oil and gas industry.
Zacks Rank: #2
VGM Score: ‘A’
Average EPS Surprise in the Last 4 Quarters: 71.63%
Bottom Line
Historical earnings surprise can be viewed as a key metric for share price outperformance and can greatly increase your odds of grabbing big winners.
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4 Top Oil Stocks with Winning Streaks at Earnings Season
So far, 2016 has not been smooth sailing for the U.S. oil futures. The commodity has been very volatile this year with prices recovering from a 12-year low of $26.21 a barrel in February to $50/barrel mark in early June, slipping again to under $40 only to rally toward $50 once more.
Factors at Play
While factors like Canadian wildfires, Nigerian outages/disruptions, production issues in Venezuela and a strike by Kuwaiti oil workers contributed to jump in prices earlier this year that saw the benchmark recover significantly, these issues have largely vanished from the market. As of now, overproduction of crude and a glut of refined products keep the commodity under pressure.
At over 520 million barrels, current crude supplies are up 14% from the year-ago period and are at the highest level during this time of the year. As it is, improvement in oil fundamentals remain fragile with the existing stocks of refined product inventories – gasoline and distillate – remaining at their maximum seasonal levels in at least 20 years despite healthy demand. Piling on the misery is the Baker Hughes report revealing a steady rise in the U.S. oil rig count and pointing to the resurgence in shale drilling activities.
A number of major industry players, including Exxon Mobil Corp. (XOM - Free Report) , Royal Dutch Shell plc and BP plc (BP - Free Report) have reported sub-standard second-quarter numbers as lower energy prices take a toll.
Q2 Flashback
A look back at Q2 earnings season reflects that the overall results of the Oil/Energy sector were again very weak, dragging down the aggregate growth picture for the S&P 500 index.
Despite an impressive recovery, crude prices stayed under $50 – about half the level of two years ago – and far below the breakeven price for many energy companies. Moreover, most oil producers have been churning out ‘black gold’ at full throttle, thereby letting the commodity slip.
Earnings fell by a whopping 78.9% year over year, following a 108.6% drop witnessed in the previous quarter. Things have been bad on the revenue front too, which was down 24.4% in the June quarter after declining 29.3% in the previous three-month period.
Beating the Odds
However, like always, there were some companies that trumped these challenges and stood out with great earnings surprises. While not every company that posts positive earnings surprises witnesses a gain in stock price, studies show that on an average, earnings beats drive strong returns in share prices for several weeks following the report. Picking out and investing in such stocks can boost your portfolio returns.
Earnings Surprise History Is Important
With a few energy firms outperforming Q2 estimates, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver attractive returns.
However, a history of positive earnings surprise generally works as a catalyst in sending a stock higher. It indicates the company’s ability to surpass the estimates. So, investors take it in their consideration while betting on the stock with the expectation that the company will do the same trick to outpace the estimates in the upcoming release.
The Zacks Rank, which justifies a company’s strong fundamentals, can also come in really handy.
Finally, the chosen ones have VGM Score less than or equal to B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential.
4 Stocks to Invest In
Independence Contract Drilling Inc. (ICD - Free Report) : Houston, TX-based Independence Contract drilling offers land drilling services for oil and natural gas producers primarily in the U.S.
Zacks Rank: #2
VGM Score: ‘B’
Average EPS Surprise in the Last 4 Quarters: 48.77%
McDermott International Inc. : Incorporated in 1959, Houston, TX-based McDermott International is an engineering and construction company, solely focused on the offshore oil and gas business.
Zacks Rank: #2
VGM Score: ‘A’
Average EPS Surprise in the Last 4 Quarters: 481.54%
NGL Energy Partners L.P. (NGL - Free Report) : It is a limited partnership operating a vertically integrated propane business with three operating segments: retail propane; wholesale supply and marketing; and midstream.
Zacks Rank: #1
VGM Score: ‘B’
Average EPS Surprise in the Last 4 Quarters: 228.54%
Subsea 7 S.A. (SUBCY - Free Report) : London-based Subsea 7 is a leading oilfield contractor engaged in the designing, procurement, building, installation, and servicing of a range of offshore surface and sub-surface equipment for the oil and gas industry.
Zacks Rank: #2
VGM Score: ‘A’
Average EPS Surprise in the Last 4 Quarters: 71.63%
Bottom Line
Historical earnings surprise can be viewed as a key metric for share price outperformance and can greatly increase your odds of grabbing big winners.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>