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5 Top Oil Stocks with Winning Streaks at Earnings Season
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We are almost at the last leg of 2016, a year that was marked by unprecedented energy market volatility.
Oil & Gas Performance in Q3
Unlike the second quarter, in which oil advanced more than 26% sequentially to notch up the best quarterly percentage gain in seven years, the Jun-Sep 2016 period turned out to be rather flat with crude barely advancing. In fact, the West Texas Intermediate (WTI - Free Report) crude futures during the third quarter hovered around the $45 per barrel mark, flat with the second quarter and down from $46.50 in the same period last year.
On the other hand, natural gas popped through the $3 barrier for the first time in more than a year during the third quarter. Successive below-average builds with strong power sector consumption have been cutting into the year-over-year storage surplus. In fact, natural gas prices have doubled since hitting 17-year lows of around $1.6 per MMBtu in the first quarter.
Q3 Flashback
A look back at Q3 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.
Earnings fell by a whopping 63.3% year over year, following a 79% drop witnessed in the previous quarter. Things have been bad on the revenue front too, which was down 12.9% in the Sep quarter after declining 24.4% in the previous three-month period.
Beating the Odds
However, despite being the largest decliner among the major sectors, an overwhelming 75% Oils/Energy companies have beaten earnings estimates – though undoubtedly aided by low expectations.
There were the companies that trumped 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 Q3 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.
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: #1
VGM Score: ‘A’
Average EPS Surprise in the Last 4 Quarters: 474.04%
Ocean Rig UDW LLC : Nicosia, Cyprus-headquartered Ocean Rig mainly provides services related to offshore drilling to the upstream energy players. The company’s drilling units specialize in operating in harsh-environment.
Zacks Rank: #1
VGM Score: ‘A’
Average EPS Surprise in the Last 4 Quarters: 66.39%
W&T Offshore Inc. (WTI - Free Report) : An exploration and production company headquartered in Houston, TX, W&T Offshore focuses primarily in U.S. Gulf of Mexico’s shallow water shelf.
Zacks Rank: #2
VGM Score: ‘A’
Average EPS Surprise in the Last 4 Quarters: 31.49%
Matador Resources Co. (MTDR - Free Report) : Matador Resources is an independent exploration and production company engaged in the acquisition, finding, and development of unconventional onshore oil and gas properties.
Zacks Rank: #2
VGM Score: ‘B’
Average EPS Surprise in the Last 4 Quarters: 250.51%
Unit Corp. : Unit Corp., based in Tulsa, OK, is engaged in exploration and production of oil and natural gas in the U.S., apart from offering midstream and contract drilling services.
Zacks Rank: #2
VGM Score: ‘B’
Average EPS Surprise in the Last 4 Quarters: 45.15%
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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5 Top Oil Stocks with Winning Streaks at Earnings Season
We are almost at the last leg of 2016, a year that was marked by unprecedented energy market volatility.
Oil & Gas Performance in Q3
Unlike the second quarter, in which oil advanced more than 26% sequentially to notch up the best quarterly percentage gain in seven years, the Jun-Sep 2016 period turned out to be rather flat with crude barely advancing. In fact, the West Texas Intermediate (WTI - Free Report) crude futures during the third quarter hovered around the $45 per barrel mark, flat with the second quarter and down from $46.50 in the same period last year.
On the other hand, natural gas popped through the $3 barrier for the first time in more than a year during the third quarter. Successive below-average builds with strong power sector consumption have been cutting into the year-over-year storage surplus. In fact, natural gas prices have doubled since hitting 17-year lows of around $1.6 per MMBtu in the first quarter.
Q3 Flashback
A look back at Q3 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.
Earnings fell by a whopping 63.3% year over year, following a 79% drop witnessed in the previous quarter. Things have been bad on the revenue front too, which was down 12.9% in the Sep quarter after declining 24.4% in the previous three-month period.
Beating the Odds
However, despite being the largest decliner among the major sectors, an overwhelming 75% Oils/Energy companies have beaten earnings estimates – though undoubtedly aided by low expectations.
There were the companies that trumped 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 Q3 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. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
5 Stocks to Invest In
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: #1
VGM Score: ‘A’
Average EPS Surprise in the Last 4 Quarters: 474.04%
MCDERMOTT INTL Price and EPS Surprise
MCDERMOTT INTL Price and EPS Surprise | MCDERMOTT INTL Quote
Ocean Rig UDW LLC : Nicosia, Cyprus-headquartered Ocean Rig mainly provides services related to offshore drilling to the upstream energy players. The company’s drilling units specialize in operating in harsh-environment.
Zacks Rank: #1
VGM Score: ‘A’
Average EPS Surprise in the Last 4 Quarters: 66.39%
OCEAN RIG UDW Price and EPS Surprise
OCEAN RIG UDW Price and EPS Surprise | OCEAN RIG UDW Quote
W&T Offshore Inc. (WTI - Free Report) : An exploration and production company headquartered in Houston, TX, W&T Offshore focuses primarily in U.S. Gulf of Mexico’s shallow water shelf.
Zacks Rank: #2
VGM Score: ‘A’
Average EPS Surprise in the Last 4 Quarters: 31.49%
W&T OFFSHORE Price and EPS Surprise
W&T OFFSHORE Price and EPS Surprise | W&T OFFSHORE Quote
Matador Resources Co. (MTDR - Free Report) : Matador Resources is an independent exploration and production company engaged in the acquisition, finding, and development of unconventional onshore oil and gas properties.
Zacks Rank: #2
VGM Score: ‘B’
Average EPS Surprise in the Last 4 Quarters: 250.51%
MATADOR RESOURC Price and EPS Surprise
MATADOR RESOURC Price and EPS Surprise | MATADOR RESOURC Quote
Unit Corp. : Unit Corp., based in Tulsa, OK, is engaged in exploration and production of oil and natural gas in the U.S., apart from offering midstream and contract drilling services.
Zacks Rank: #2
VGM Score: ‘B’
Average EPS Surprise in the Last 4 Quarters: 45.15%
UNIT CORP Price and EPS Surprise
UNIT CORP Price and EPS Surprise | UNIT CORP Quote
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.
Zacks' Best Investment Ideas for Long-Term Profit
Today you can gain access to long-term trades with double and triple-digit profit potential rarely available to the public. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this private information? Click here >>