A wave of good news propelled U.S. stock markets higher in August after a brief but sharp pullback in the early part of the month. The Standard & Poor’s 500 index is up 4.9 percent from its August lows and the Nasdaq 100 is up 6.2 percent. Good news on many fronts appears to be restoring lost confidence among investors. For the year-to-date, all of the major indices are up with the tech-laden Nasdaq up almost 10 percent.
However, at least one sector of the market seems to be missing out on this recent move. Since hitting a high on June 23, the S&P US Energy Select Index has declined approximately 3.8 percent. This happened in spite of many geopolitical factors that one may think would have a positive effect on the price of energy, and hence the energy index constituents.
What are we looking for? In this article, we will search for oversold U.S. energy stocks that may be poised to move higher in the short term. I will focus specifically on the oil and gas producers, rather than the integrated oil firms, which are less exposed to the price of the underlying commodities. I will use the Recognia Strategy Builder tool to screen for stocks that exhibit signs of being oversold.
I begin searching by setting a minimum market capitalization threshold of $10 billion to focus on larger, more established oil and gas producers in our search. Next, we look for companies that have declined significantly in recent weeks. Then, I’ll look for stocks trading at least 10 percent but no more than 30 percent off their 52-week highs. Finally, I’ll look for stocks trading lower by at least 5 percent in the last 13 weeks.
What did I find? Strategy Builder uncovered six companies which match the criteria set out above. Most of these companies are involved primarily in natural gas, rather than oil production. A decrease in natural gas commodity prices over the past months have likely been a primary contributor to these recent price slides.
Cabot Oil & Gas. Cabot Oil & Gas is an independent producer of oil and natural gas based in Houston. Cabot has major holdings in the Marcellus shale region of Pennsylvania. This company had a new 52-week high on Feb. 5 and has declined significantly since. The stock is now trading more than 20 percent off its 52-week high. The company’s recent second quarter earnings beat analysts’ estimates by $0.03 per share, as well as reporting a 5 percent quarter-on-quarter production increase and a 34 percent year-over-year production increase.
Headquartered in Denver, Antero Resources is currently the most active operator in the Marcellus shale area. The stock has been down 10.2 percent in the past 13 weeks and is trading at a 17.2 percent discount to its 52-week high. The company had its initial public offering last October at $44.00 and has executed well on its business plan since then.
Chesapeake Energy. Chesapeake Energy is an oil and gas producer focusing on unconventional oil and gas assets in the U.S. The stock is currently trading 14.9 percent off its 52-week-high made on June 24 and has a 13-week price performance of -8.4 percent. The company recently posted second quarter earnings. Those earnings missed expectations, although the company did exceed expectations on top-line revenue.
Southwest Energy. Southwest Energy is currently the fourth largest producer of natural gas in the U.S. The company’s operations are primarily focused on the Fayetteville shale of Arkansas and the Marcellus shale of Pennsylvania. The company announced earlier this year that it had acquired land for exploration in northwestern Colorado.
The above companies represent interesting opportunities should the market decide some aspects of the energy sector have become oversold and now represent compelling value. In addition, the spot price for NYMEX natural gas appears to have stabilized after a slide in the month of July. This may point to better times ahead for U.S. natural gas producers.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
Peter Ashton is the Vice President of Retail & Self-Directed Investing for Recognia, the industry leader in providing global retail investors with actionable insights to make confident trading decisions. Ashton is directly responsible for empowering the trading community of over 20 million investors to which Recognia is provisioned by ensuring all aspects of the company’s client service delivery including the distribution of in-depth investment research culled from Recognia’s patented investing analytics.
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These Energy Stocks Are Poised for a Rebound originally appeared on usnews.com