In the midst of another heavy selling day in equities, crude oil
showed more surprising strength on Wednesday. This after Tuesday's
action when light sweet crude traded into the $75 handle and then
rebounded sharply along with equities after the FOMC policy
statement.
Wednesday's surge to nearly $83 per barrel and
Thursday's push above $84.50 is signaling that while stocks may be
pricing in the coming recession, the oil market is not. I think it
is therefore a great time to look for bargains among strong energy
names.
Here are seven Zacks #1 Rank stocks that I am
trading this month. Note that most are mid-cap names ($2-$10
billion market cap), which is typical of the Zacks #1 Rank (strong
buy) because our model screens for stocks with rapid earnings
acceleration.
Each name is listed below by market capitalization
(MC), with the stock's forward P/E, a brief description of the
company's business focus, and current year/next year EPS growth
rates.* Be sure to see the available reports for more detailed
analysis.
National Oilwell Varco (NOV): $25.5B MC,
13.6 P/E; a worldwide leader in the design, manufacture and sale of
machinery and equipment used in oil and gas drilling and
production, with many components designed specifically for rig
applications in offshore, extended reach and deep land drilling.
2011/12 EPS growth of 8.6% and 27%.
Cabot Oil & Gas (COG): $6.2B MC, 39 P/E;
an independent oil and gas company engaged in the exploration,
development, acquisition and exploitation of oil and gas properties
located in four areas of the United States: the onshore Texas and
Louisiana Gulf Coast; the Rocky Mountains; Appalachia; and the
Mid-Continent or Anadarko Basin. 2011/12 EPS growth of 52% and
82%.
Precision Drilling (PDS): $3.3B MC, 12.75
P/E; an integrated oilfield drilling and energy service company
that provides contract drilling, well servicing, and
technologically advanced equipment for strategic support to
hundreds of onshore rigs in Texas and Canada. 2011/12 EPS growth of
90% and 47.75%.
Oil States International (OIS): $3.2B MC,
11.8 P/E; a diversified global oilfield services company, a leading
manufacturer of products for deepwater production facilities and
subsea pipelines, a leading supplier of a broad range of services
to the oil and gas industry, including production-related rental
tools, work force accommodations and logistics, oil country tubular
goods distribution and land drilling services. 2011/12 EPS growth
of 60% and 23.6%.
Complete Production Services (CPX): $2.1B
MC, 9.4 P/E; one of North America's leading oilfield service
providers, offering all-inclusive field support solutions,
equipment and well-production optimization and enhancement to the
world's largest oil and gas companies who rely on the company's
local basin expertise and leadership in the major oil and gas
regions from Canada to Mexico. 2011/12 EPS growth of 163% and
36%.
Key Energy Services (KEG): $2.0B MC, 14.5
P/E; one of the largest providers of onshore oil and gas well
services in the United States and Argentina, the company provides a
full range of maintenance and workover services to major and
independent oil and gas companies including the completion of newly
drilled wells, the recompletion of existing wells and the plugging
and abandonment of wells at the end of their useful lives. 2011/12
EPS growth of 845% and 77%.
Basic Energy Services (BAS): $900M MC, 10.8
P/E; provides a range of services to America's oil and gas
producers with operations spanning the heartland of domestic
onshore production from Texas, Oklahoma, Louisiana and New Mexico
to the Rocky Mountain states. Its services support the entire life
cycle of a well - from drilling to production and finally -
abandonment. 2011/12 EPS growth of 273% and 45.7%.
*A key caveat here with all of these forward
earnings estimates and growth projections is that they are subject
to downward revisions as the probability of recession increases
and/or lower oil prices are figured into valuation metrics.
Two More Potential Bargains: SU and CVI
I also want to mention two more stocks that do not
currently maintain the coveted Zacks #1 Rank, but may offer
opportunity to energy investors. Suncor (SU), the 47.6
billion Canadian oil-sands giant is now trading at 10 times forward
estimates after falling about 25% in the past month.
If you want to exposure to the Athabasca tar-sands
basin, this is probably the powerhouse name to own. Current 2011
and 2012 EPS growth estimates are at 76% and 20% respectively.
Suncor has a Zacks #3 Rank (hold) at this time.
CVR Energy (CVI), a $1.8 billion refiner,
with a division focused on ammonia/urea nitrate fertilizers,
currently has a forward P/E of just 6.2 times. With expected EPS
for 2011 to hit $3.27, this represents 900% growth.
CVI is currently a Zacks #2 Rank (buy) stock. If
you like the refining business, you may also want to consider
Valero (VLO) or HollyFrontier (HFC) since both names
are Zacks #1 Rank stocks.
This list of energy names with strong earnings
growth potential -- and in some cases, compelling value -- should
give investors and traders a good starting point when considering
to add to an energy portfolio during this market correction.
They may not launch higher right away, but if you
believe in the long-term secular bull market in crude oil -- i.e.,
that a barrel will spend the majority of the this decade in
triple-digits -- then finding bargains now in the energy patch is a
high-probability opportunity.
Disclosure: I own, or have long positions via
naked puts in NOV, SU, CVI, and BAS
Kevin Cook is a Senior Stock Strategist for
Zacks.com
CABOT OIL & GAS (COG): Free Stock Analysis Report
CVR ENERGY INC (CVI): Free Stock Analysis Report
NATL OILWELL VR (NOV): Free Stock Analysis Report
SUNCOR ENERGY (SU): Free Stock Analysis Report
VALERO ENERGY (VLO): Free Stock Analysis Report
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