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Not Diamond Offshore: Buy These Stocks for Energy Momentum
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Despite the tough operating environment, Diamond Offshore Drilling Inc. (DO - Free Report) has charmed us for a long time, consistently beating estimates quarter upon quarter. In fact, the Houston-based offshore driller has an excellent track record: its beaten estimates in each of the last four quarters at an impressive average rate of 290.52%. This, together with its balance sheet strength, helped Diamond Offshore outperform the sector over the past year.
However, a look at the company’s latest fleet status report shows that its fleet is not among the best in the group. With 14 cold stacked rigs, two retired and 18 working rigs (most of them aging), Diamond Offshore urgently needs more revenue generating assets to navigate deep into the bear phase. The most recent quarter results reflected this aptly, with revenue down 17% sequentially.
The rig operator received another jolt yesterday after it reported that Brazil’s Petrobras (PBR - Free Report) has canceled a rig contract. Investors soured on shares in Diamond Offshore following the news and the stock fell almost 11% to $16.51 on Thursday. Petrobras opted to terminate the contract for the semisubmersible Ocean Valor. The drillship was contracted through October 2018 at a dayrate of around $455,000.
This is another sign that the collapse in crude prices that began in mid-2014 amid a glut of supply and slowing demand for the commodity has affected the offshore drillers badly as oil companies cut back their capital spending.
So shares lost momentum sometime back, earning Diamond Offshore a Zacks Momentum Style Score of ‘D.’
So What's a Momentum Style Score?
As evident from the Diamond Offshore story, stocks can take a sudden turn for the good (or bad), making stock picking a risky game. Every good stock also has its bad day, which further adds to the risk. At the same time, this volatility can be exploited to make significant profits, which is where the Momentum Style Score enters the picture.
The Momentum Style Score is an indication of the time to buy a stock to benefit from rising share prices. The highest score is an A, so getting in on an A and out on a B or C could be a strategy for short term gains. For a more in-depth understanding, check out our Style Score System.
But investors should bear in mind that this is a speculative strategy and not meant for the weak-of-heart.
That said, we pair the momentum score with a Zacks Rank of #1 (Strong Buy) or #2 (Buy), which as you know indicates stocks with high chances of outperforming the market over the next 1-3 months. One of the main factors driving the Zacks Rank is estimate revisions, so stocks with high ranks as well as high momentum scores have even greater chances of short-term appreciation.
Here, we’ve picked out four energy stocks for momentum investors based primarily on these two factors:
4 Stocks to Invest In
Devon Energy Corp. (DVN - Free Report) : Oklahoma City-based Devon Energy is primarily engaged in the exploration, development and production of oil and natural gas in the onshore areas of North America. The company has been topping expectations in recent history with the last four quarters averaging 44.08%. What’s more, estimates for 2016 and 2017 have jumped a respective 67% and 72% in the last 30 days. Finally, Devon Energy has beaten out the industry at large over the past 4 weeks by a margin of 14.03% to 0.40%
Zacks Rank: #1
Momentum Score: ‘A’
CONE Midstream Partners L.P. : Headquartered in Canonsburg, PA, CONE Midstream Partners is a master limited partnership focused on natural gas and condensate gathering in the Marcellus Shale in Pennsylvania, Ohio and West Virginia. The partnership has consistently topped estimates with the last four quarters averaging 19.38%. Moreover, 2016 and 2017 estimates are trending up. With a one-month price change of 7.23% compared to an industry average of -0.0.75%, CONE Midstream is certainly well-positioned from the momentum point of view.
Zacks Rank: #1
Momentum Score: ‘A’
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. The company has an excellent earnings surprise history. It surpassed estimates in each of the last four quarters at an average rate of 125.51%. Earnings estimates for this year and next are edging up as well. Matador Resources has beaten out the industry at large over the past 4 weeks by a margin of 14.46% to 0.40%.
Zacks Rank: #1
Momentum Score: ‘A’
SM Energy Co. (SM - Free Report) : Denver, CO-based SM Energy is an independent oil and gas company engaged in the exploration, exploitation, development, acquisition and production of natural gas and crude oil in North America. Its estimate surprise history hasn’t been too great although in the last quarter it beat by a strong 36.23%. Over the past 30 days, the Zacks Consensus Estimate for 2016 and 2017 increased 17% and 34%, respectively. The company has beaten out the industry at large over the past 4 weeks by a margin of 26.69% to 0.40%
Zacks Rank: #2
Momentum Score: ‘A’
Bottom Line
If you are looking for fresh picks that have potential to move in the right direction, definitely keep the 4 abovementioned stocks on your list as these look well-positioned to soar in the near term.
Confidential: Zacks' Best Investment Ideas
Would you like to see a hand-picked "all-star" selection of investment ideas from the man who heads up Zacks' trading and investing services? Steve Reitmeister knows when key trades are about to be triggered and which of our experts has the hottest hand. Click for his selected trades right now >>
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Not Diamond Offshore: Buy These Stocks for Energy Momentum
Despite the tough operating environment, Diamond Offshore Drilling Inc. (DO - Free Report) has charmed us for a long time, consistently beating estimates quarter upon quarter. In fact, the Houston-based offshore driller has an excellent track record: its beaten estimates in each of the last four quarters at an impressive average rate of 290.52%. This, together with its balance sheet strength, helped Diamond Offshore outperform the sector over the past year.
However, a look at the company’s latest fleet status report shows that its fleet is not among the best in the group. With 14 cold stacked rigs, two retired and 18 working rigs (most of them aging), Diamond Offshore urgently needs more revenue generating assets to navigate deep into the bear phase. The most recent quarter results reflected this aptly, with revenue down 17% sequentially.
The rig operator received another jolt yesterday after it reported that Brazil’s Petrobras (PBR - Free Report) has canceled a rig contract. Investors soured on shares in Diamond Offshore following the news and the stock fell almost 11% to $16.51 on Thursday. Petrobras opted to terminate the contract for the semisubmersible Ocean Valor. The drillship was contracted through October 2018 at a dayrate of around $455,000.
This is another sign that the collapse in crude prices that began in mid-2014 amid a glut of supply and slowing demand for the commodity has affected the offshore drillers badly as oil companies cut back their capital spending.
So shares lost momentum sometime back, earning Diamond Offshore a Zacks Momentum Style Score of ‘D.’
So What's a Momentum Style Score?
As evident from the Diamond Offshore story, stocks can take a sudden turn for the good (or bad), making stock picking a risky game. Every good stock also has its bad day, which further adds to the risk. At the same time, this volatility can be exploited to make significant profits, which is where the Momentum Style Score enters the picture.
The Momentum Style Score is an indication of the time to buy a stock to benefit from rising share prices. The highest score is an A, so getting in on an A and out on a B or C could be a strategy for short term gains. For a more in-depth understanding, check out our Style Score System.
But investors should bear in mind that this is a speculative strategy and not meant for the weak-of-heart.
That said, we pair the momentum score with a Zacks Rank of #1 (Strong Buy) or #2 (Buy), which as you know indicates stocks with high chances of outperforming the market over the next 1-3 months. One of the main factors driving the Zacks Rank is estimate revisions, so stocks with high ranks as well as high momentum scores have even greater chances of short-term appreciation.
Here, we’ve picked out four energy stocks for momentum investors based primarily on these two factors:
4 Stocks to Invest In
Devon Energy Corp. (DVN - Free Report) : Oklahoma City-based Devon Energy is primarily engaged in the exploration, development and production of oil and natural gas in the onshore areas of North America. The company has been topping expectations in recent history with the last four quarters averaging 44.08%. What’s more, estimates for 2016 and 2017 have jumped a respective 67% and 72% in the last 30 days. Finally, Devon Energy has beaten out the industry at large over the past 4 weeks by a margin of 14.03% to 0.40%
Zacks Rank: #1
Momentum Score: ‘A’
CONE Midstream Partners L.P. : Headquartered in Canonsburg, PA, CONE Midstream Partners is a master limited partnership focused on natural gas and condensate gathering in the Marcellus Shale in Pennsylvania, Ohio and West Virginia. The partnership has consistently topped estimates with the last four quarters averaging 19.38%. Moreover, 2016 and 2017 estimates are trending up. With a one-month price change of 7.23% compared to an industry average of -0.0.75%, CONE Midstream is certainly well-positioned from the momentum point of view.
Zacks Rank: #1
Momentum Score: ‘A’
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. The company has an excellent earnings surprise history. It surpassed estimates in each of the last four quarters at an average rate of 125.51%. Earnings estimates for this year and next are edging up as well. Matador Resources has beaten out the industry at large over the past 4 weeks by a margin of 14.46% to 0.40%.
Zacks Rank: #1
Momentum Score: ‘A’
SM Energy Co. (SM - Free Report) : Denver, CO-based SM Energy is an independent oil and gas company engaged in the exploration, exploitation, development, acquisition and production of natural gas and crude oil in North America. Its estimate surprise history hasn’t been too great although in the last quarter it beat by a strong 36.23%. Over the past 30 days, the Zacks Consensus Estimate for 2016 and 2017 increased 17% and 34%, respectively. The company has beaten out the industry at large over the past 4 weeks by a margin of 26.69% to 0.40%
Zacks Rank: #2
Momentum Score: ‘A’
Bottom Line
If you are looking for fresh picks that have potential to move in the right direction, definitely keep the 4 abovementioned stocks on your list as these look well-positioned to soar in the near term.
Confidential: Zacks' Best Investment Ideas
Would you like to see a hand-picked "all-star" selection of investment ideas from the man who heads up Zacks' trading and investing services? Steve Reitmeister knows when key trades are about to be triggered and which of our experts has the hottest hand. Click for his selected trades right now >>