Over the last couple years, crude oil has been a devastating commodity to be involved in. While the consumer might be feeling relief at the gas pump, the companies and employees that deliver energy are hurting badly. According to Wolf research, nearly a third of all American oil-and-gas companies could face bankruptcy or restructuring through 2017. As 2008 remains fresh in the mind of traders and investors, the fear of bankruptcies and contagion has dragged down stock prices of nearly every industry.
However, we could be coming to a turning point. The price action of crude over the last two days has been overwhelmingly positive, with oil rallying over 16% from the Wednesday low. Catalysts for the move include the following: bad inventory report being priced in, favorable OPEC chatter, and too many shorts sellers leaning on the trend.
Get long with these ETFs
United States Oil Fund (USO - Free Report) is an ETF that reflects the performance of the spot price of West Texas Intermediate (WTI) light, sweet crude oil. This ETF will move up and down with the price of crude and give an investor a liquid way to get in and out of the oil market. There is a .45% expense ratio for the fund.
Velocity shares 3X long crude oil (UWTI) is an ETN composed of WTI futures contracts that will move three times the daily move of crude oil. For the aggressive investor, this is the way to capture an upside move in crude oil. However, when crude moves lower, this instrument moves three times lower then USO would.
The companies below will benefit in a rising crude oil environment, as the recent slump in energy stock prices is overdone. Investors in these stocks will benefit from higher oil prices, which will help them perform fundamentally better.
Sunoco (SUN - Free Report) is a wholesale fuel distributor and a Zacks Rank #2(Buy). Sunoco separates itself from other companies exposed to oil and gas prices with their convenience store fuel outlets.
The company sports Zacks Style Scores of “A” in all three categories of Value, Growth, and Momentum. The scores lead us to believe that Sunoco has strong growth, has momentum in rising estimates and is undervalued. The recent selling pressure in the sector has created a strong value opportunity, with possibility for strong growth, a rare opportunity.
Sunoco has a $1.80 Billion market cap with a Forward P/E of 12.41. Analyst are raising estimates, with 2016 estimates rising 30.9% over the last 90 days. Within that timeframe, analysts are in agreement in the direction of the company, with 8 out of ten revising higher.
While oil tries to rebound, it will be volatile, but Sonoco offers a nice dividend of 8.65% while you wait.
Gulfport Energy (GPOR - Free Report) is a Zacks Rank #2(Buy) that owns and operates oil and gas properties in the Louisiana Gulf Coast area. Gulfport has had a rough year, off over 65% from last year’s highs, bringing the market cap down to $2.5 Billion.
The company has surprised the consensus estimates to the upside four straight times, but price has not followed. Normally this price action would be disturbing, but with oil making a turn, it’s possible that bad news is priced in. If oil momentum can reverse course, future earnings surprises will be followed by upward stock pressure.
Apache (APA - Free Report) is an independent energy company and is a Zacks Rank #2(Buy). Apache explores for, develops and produces natural gas, crude oil and natural gas liquids. The company has a $14 Billion market cap with a 2.70% dividend and a Value Style Score of “B”. It has not been an easy year for Apache, with the stock down over 60% from last year’s high, to $40 a share.
Apache is a value play. If oil can head higher, Apache’s earnings estimates can improve. Apache has surprised seven straight times as the price has come down, signaling the company is underestimated. If oil can recover, earnings power will come back as well as the stock price.
Catching a knife is not easy. Crude oil and the stocks that do business based on the price of energy will remain volatile. This week we saw a tradable bottom in the energy commodities and many energy companies. It will remain to be seen whether or not we see new lows, but for now investors are looking to get in early in solid companies.
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