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Why Hold Strategy is Apt for Diamondback (FANG) Stock Now

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Diamondback Energy, Inc. FANG is a leading upstream energy player with operations in the prolific Permian basin. In 2019 and 2020, the stock is likely to see earnings growth of 9% and 35%, respectively.

Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).

Factors Favoring the Stock

The company is a pure-play Permian company, spreading across more than 342,000 net acres. In the basin, the company has more than 7,600 net horizontal drilling locations that will allow the company to produce oil for years.

With oil prices likely to remain favorable in the coming months, Diamondback is well placed to generate high earnings since crude accounts for majority of its total production. It is to be noted that more upside awaits oil price in 2020 as its demand outlook is improving and global supply is shrinking.

Moreover, Diamondback is committed to returning capital to shareholders. The company has a roughly $2-billion stock repurchase program in place that was instituted in May 2019. The oil explorer and producer will carry out the buyback program through Dec 31, 2020. Importantly, the upstream energy firm has bought back roughly $400 million worth stocks through the end of third-quarter 2019.

Factors Deterring the Stock

Although Diamondback is returning capital through share buybacks, the company’s dividend yield is not attractive. The company’s dividend yield of 0.86% is considerably lower than 1.34% of the composite stocks belonging to the industry.

Moreover, the pipeline bottleneck problem persists in the Permian, thereby deterring oil producers from producing at maximum levels.

Stocks to Consider

Some better-ranked players in the energy space are Murphy USA Inc MUSA, Sasol Limited SSL and CNX Resources Corporation (CNX - Free Report) . While Murphy USA and Sasol sport a Zacks Rank #1 (Strong Buy), CNX Resources carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy USA beat the Zacks Consensus Estimate in three of the prior four quarters.

For fiscal 2020, Sasol is likely to post earnings growth of 30%.

CNX Resources surpassed the Zacks Consensus Estimate in two of the prior four quarters. It has a positive earnings surprise of 34.8%, on average, for the trailing four quarters.

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