Back to top

4 Lagging Energy Companies Likely to Turn Around in Q4

Read MoreHide Full Article

The first nine months of the year saw oil benchmark in the United States attain its highest settlement since November 2014. Crude was supported by a variety of catalysts, including the risk to Iranian supply, a series of buoyant weekly EIA inventory numbers and doubts over OPEC’s ability to boost production in the midst of strong demand.

Iran Sanctions: Most of this price jump could be attributed to United States’ refusal to issue any waivers on cutting crude imports from Iran by Nov 4 when sanctions are introduced against the country’s petroleum sector.

Sharp Inventory Drawdowns: Oil prices were also supported by a string of bullish reports from the Energy Department. The gradual fall has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 404 million barrels, current crude supplies are 13.1% below the year-ago figure and are at the five-year average.

Production Decline in Venezuela: Fast-falling production in Venezuela have added to the jitters. With the country tethering on the verge of an economic collapse, oil output has dwindled by more than 40% since 2016.

Refusal by Major Producers to Boost Output: At a recent meeting in Algeria, OPEC and its allies did not commit to any output increase to compensate for the anticipated supply disruptions from Iran.

The Trend is Certainly Bullish

While one should not rule out chances for short-term pullbacks emanating from the relentless increase in American production, occasional inventory builds or profit taking, industry observers are extremely confident of an extended period of gains in the near future. A surge in demand this year has pushed global consumption above 100 million barrels per day threshold for the first time. However, supply from OPEC – which still accounts for roughly 40% of the world's crude – is expected to remain weak throughout 2018. Also, years of low-price environment have forced operators to trim their capital expenditures considerably that means a relatively narrow pipeline of new projects.

Look for Bargain Buys with Strong Fundamentals

If investors are eager to lap up opportunities in this market, a prudent move would be to buy the beaten-down stocks with encouraging fundamentals.

To guide investors to the right picks, we highlight four stocks that carry a Zacks Rank of #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Also, the chosen ones have VGM Scoreless 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 or #2offer the best upside potential.

Finally, the stocks, which we shall cherry-pick, currently come at a bargain price after declining or marginally increasing in the first nine months of the year (as compared to oil’s 25% rise), but have the potential to turn around in the fourth quarter.

Four Stocks to Invest In

Chevron Corporation (CVX - Free Report) is one of the largest publicly traded oil and gas companies in the world, based on proved reserves. It currently has a VGM Score of A. The stock has barely moved in 2018 with a paltry gain of less than 1%.

Weatherford International plc (WFT - Free Report) is among the leading oilfield service players in the world, offering a variety of services to the energy sector. This stock has a VGM Score of B. It has lost 33% so far this year.

Solaris Oilfield Infrastructure, Inc. (SOI - Free Report) is a leading provider of storage and management solutions to oil and natural gas well sites. This stock has a VGM Score of B. It has lost 13% so far this year.

Exterran Corporation (EXTN - Free Report) offers compression, production, and processing solutions that help in the production and transportation of oil and gas. This stock has a VGM Score of A. It has lost 13% so far this year.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>



More from Zacks Analyst Blog

You May Like

Published in