Following supply glut and lackluster global demand, oil prices remained low for more than three years. Since late 2014, crude oil went from over $90 a barrel to under $30. However, the market has recovered from their historic lows with prices finally rebounding to the $50 a barrel threshold mark. The improving commodity pricing environment looks somewhat sustainable on tightening supplies, improving demand outlook and OPEC deal extension talks.
However, while OPEC's moves to trim output and rebalance the demand-supply situation have stabilized the market to a large extent, in the process it has incentivized shale drillers to churn out more. Per Energy Information Administration’s (“EIA”) latest inventory release, U.S. production rose 88,500 barrels a day in September.
The overall picture for the sector seems rather optimistic.
The latest weekly release from Baker Hughes shows positive signs for the oversupplied oil market, wherein it reported a fall in oil and natural gas rig count in the United States. The total U.S. rig count fell by 4 to 936, for the week ended Oct 6. The rig count fell fourth time in the last five weeks as the energy companies reduce their spending.
Investors have also pinned hopes of recovery over the recent U.S. Energy Department's inventory releases that show multiple weeks of strong inventory draws in the domestic crude stockpiles — pointing to a slowdown in shale output. The latest report revealed that crude inventories slumped by 6 million barrels for the week ending Sep 29, following a decrease of 1.8 million barrels in the previous week.
U.S. crude oil plus products comparative inventories have declined 120 million barrels in 26 of the last 32 weeks. Improving domestic demand scenario and increased crude oil exports support the data.
Adding to the positive momentum, OPEC and fellow exporters also announced plans to remain open to extend their production-cut agreement beyond March. Some cartel members including less compliant nations like Iraq have also signaled another around of supply cuts.
Energy bodies OPEC and IEA both recently raised global oil demand forecasts for the year, helping to tighten the market significantly.
All these factors point toward the growing stability of the oil industry for the remainder of 2017, along with growth prospects in 2018.
What We Believe
With a wide range of energy firms thronging the investment space, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver attractive returns. It is not easy to be sure about such outperformers. This is where the Zacks Rank, which justifies a company’s strong fundamentals, can come in really handy.
The Zacks Rank is a reliable tool that helps you to trade with confidence regardless of your trading style and risk tolerance. To learn more about how you can use this proven system for market-beating gains, visit Zacks Rank Education.
A stock’s market price is not a clear indicator of whether it is a good investment. However, the best thing about the Zacks Rank is that it can be applied to stocks of any price. For investors looking to find solid energy stocks at lower prices, this list is a great place to start.
Low-priced stocks can be attractive to investors that can’t necessarily afford large stakes in companies with higher priced stocks. Apart from requiring lower initial investment, these cheap stocks, especially the undervalued ones have high-growth potential. Generally, low priced stocks display a steep rise in their share price on a positive development, leading to handsome profits for investors.
The affordability factor also allows for improved diversification in investors’ portfolios. Further, these low-priced stocks enable investors to purchase increased number of shares, leading to higher potential for dividend earnings.
Today we’ve highlighted four stocks that fall into the Oil and Gas Exploration & Production industry. Each of these stocks is currently trading for less than $10 per share and holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Take a look at the impressive earnings surprise history, solid fundamentals, growth potential and other factors that make these companies stick out right now.
4 Valuable Picks
Denbury Resources Inc. (DNR - Free Report) : Plano, TX-based Denbury is a growing oil and gas exploration and production company with strong activities in the areas of Gulf Coast and Rocky Mountain. The company has a relatively low-risk business model as it produces oil by applying tertiary recovery techniques to mature fields.
Denbury expects year-over-year growth of 10.8% and 950% in 2018 in its revenues and earnings respectively. The company posted an average positive earnings surprise of 25% in the last four quarters.
Abraxas Petroleum Corporation (AXAS - Free Report) : San Antonio, TX-based Abraxas Petroleum is an independent energy company, which deals with the exploration, production and development of oil and natural gas. The company has its operations spread across Rocky Mountain, Permian Basin and South Texas regions. The company’s increased production guidance along with conservative capex budget also makes us optimistic about the prospects of the stock.
Abraxas expects year-over-year growth of 53.83% and 317.86% in 2017 in its revenues and earnings respectively. The company posted an average positive earnings surprise of 27.1% in the trailing four quarters. This might be a good choice for the investors who prefer low risk and low leveraged companies.
Bill Barrett Corporation : Headquartered in Denver, the company is engaged in the exploration and development of oil and natural gas in the Rocky Mountain region. Bill Barrett has projects in nine basins in the Rocky Mountains. The estimate revisions for the company are also moving in the right direction suggesting analysts are becoming a bit bullish on the firm’s prospects in both the short and long term.
The estimates for loss have been narrowed by 1 cent for both the current year and the current quarter. The company’s high liquidity also provides it with enough financial flexibility. The company posted an average positive earnings surprise 12.74% in the trailing four quarters.
Northern Oil and Gas, Inc. (NOG - Free Report) : With its head office in Wayzata, Minnesota, Northern Oil and Gas is an independent energy company that engages in the acquisition, exploration, development, and production of oil and natural gas properties in the United States. The company boasts a strong balance sheet and robust portfolio of assets. This makes it better poised to handle volatile market conditions than most of its peers.
The company expects year-over-year growth of 43.24% in its revenues in 2017. Northern Oil and Gas posted an average positive earnings surprise of 66.67% in the trailing four quarters.
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