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5 Energy Growth Stocks to Buy on the Sell-Off

Nilanjan Choudhury

While we cheer the U.S. bull market’s 8-year anniversary, oil prices tumbled to their lowest levels of 2017 yesterday after the U.S. Energy Department's weekly inventory release showed record high inventories and rise in production. In New York, West Texas crude was down $2.86 (or 5.4%) on Wednesday to close at $50.28 per barrel.

What Triggered the Sell-Off?

The federal government’s Energy Information Administration (‘EIA’) report revealed that crude inventories jumped by 8.21 million barrels for the week ending Mar 3, 2017.

The analysts surveyed by S&P Global Platts (the leading independent commodities and energy data provider) had expected crude stocks to go up some 1.6 million barrels. A spike in the level of imports and production – now at a 1-year peak – led to the massive stockpile build with the world's biggest oil consumer.

Following the ninth successive weekly inventory rise, at 528.39 million barrels, current crude supplies are up 8% from the year-ago period and are at the highest level since the EIA began keeping records in 1982.

In particular, crude inventories at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – were up 867,000 barrels from the previous week’s level to 64.40 million barrels.

The rising U.S. oil production and inventory are starting to undermine the OPEC members’ surprisingly high level of compliance with the landmark production cut agreement signed late last year.

Investors Dump Energy Stocks

The federal data sparked widespread selling in energy stocks, which pushed the Energy Select Sector SPDR – an assortment of the largest U.S. energy companies – down 2.6% Wednesday. Even the broad-based Dow Jones Industrial Average and the S&P 500 index felt pressure from the sharp drop in crude futures, losing 0.33% and 0.23% for the day, respectively.

The two energy representatives in the 30-stock Dow Jones industrial average, ExxonMobil Corp. XOM and Chevron Corp. CVX were down almost 2%. Meanwhile, the biggest casualties of the S&P 500 were Marathon Oil Corp. MRO, Murphy Oil Corp. MUR and Devon Energy Corp. DVN, which slid 8.7%, 6.7% and 6.5%, respectively. In fact, such was the ferocity of the oil plunge that the eight worst-performing stocks in the index were all energy companies.   

Ignore Hiccups and Build a Position in Energy

After being under the pump for the most part of three years, crude prices have only started recovering. Consequently, there are investors who see oil’s yesterday’s slump as a one-off event and decide to build or increase their position in oil-related companies.

The rig counts – both U.S. and International – have bottomed and activity is starting to bounce off. Oil has rebounded from its multi-year lows reached in 2016 and while the commodity may not be at a level many thought they would be at this time of the year, even at today’s prices certain companies are in a position to earn profits.

Invest in Growth Stocks

Since the long term seems to bode well for stocks following OPEC’s Algeria grandstand, it will be a wise move to invest in growth stocks. Moreover, by purchasing stocks right after a dip, investors are essentially buying shares at a discount.

With the help of our new style score system, we have short-listed Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy) stocks with a Growth Style Score of ‘A’ or ‘B’ that hold immense growth potential despite declining in recent weeks.

In particular, our Growth Style Score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth. Our research shows that stocks with a Growth Style Score of ‘A’ or ‘B’ when combined with a favorable Zacks Rank offer the best investment opportunities in the growth investing space.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

5 Stocks to Invest In

Pioneer Natural Resources Co. PXD: An independent oil and gas exploration and production company based in Irving, TX, Pioneer Natural Resources focuses on the Permian Basin in Texas.

Zacks Rank #1

Growth Score: B

McDermott International Inc. MDR: Incorporated in 1959, Houston, TX-based McDermott International is an engineering and construction company, solely focused on the offshore oil and gas business.

Zacks Rank #2

Growth Score: B

Comstock Resources Inc. CRK: Frisco, TX-based Comstock Resources, Inc. is an independent oil and gas exploration and production company engaged in the acquisition, exploration, and development of oil and gas properties concentrated primarily in two regions in the U.S.: East Texas/North Louisiana and South Texas.

Zacks Rank #2

Growth Score: B

Flotek Industries Inc. FTK: Headquartered in Houston, TX, Flotek Industries provides a range of products and services to enhance returns for the oil and gas finders.

Zacks Rank #2

Growth Score: B

Lonestar Resources US Inc. LONE: Headquartered in Fort Worth, TX, Lonestar is an oil and gas exploration and production company with primary focus on the Eagle Ford Shale in South Texas.

Zacks Rank #2

Growth Score: B

Bottom Line

With sound fundamentals, the current beaten down prices could be viewed as a buying opportunity for many investors.

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McDermott International, Inc. (MDR): Free Stock Analysis Report
Flotek Industries, Inc. (FTK): Free Stock Analysis Report
Chevron Corporation (CVX): Free Stock Analysis Report
Exxon Mobil Corporation (XOM): Free Stock Analysis Report
Devon Energy Corporation (DVN): Free Stock Analysis Report
Pioneer Natural Resources Company (PXD): Free Stock Analysis Report
Comstock Resources, Inc. (CRK): Free Stock Analysis Report
Murphy Oil Corporation (MUR): Free Stock Analysis Report
Marathon Oil Corporation (MRO): Free Stock Analysis Report
Lonestar Resources US Inc. (LONE): Free Stock Analysis Report
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