Crude notched its biggest weekly loss since the financial crash of 2008, as continued panic over the spreading coronavirus (COVID-19) and a global stock sell-off intensified the commodity's freefall. Futures in New York slid below $45 a barrel on Friday and ended the week down more than 16%, the worst showing in more than 11 years.
At a time when oil prices have declined sharply over coronavirus-led concerns, it also represents an opportunity to make a killing by acquiring good stocks at today’s depressed prices.
Investors Dump Energy Stocks
Traders focused on the growing risks of the outbreak that has restricted travel, stalled factory activity and squeezed businesses worldwide. The sell-off is fueled mostly by the amount of uncertainties surrounding the pandemic's future path - how bad it could get and when it would be over.
The health scare, which reportedly emerged in Wuhan, China, has spread rapidly to every continent barring Antarctica, since being first identified back in late last year. As of now, the infectious disease has killed over 3,000 people so far and infected in excess of 88,000 globally. It’s no surprise then that the virus has led to expectations for sluggish corporate earnings in the future and added to the downbeat mood in the oil industry
In particular, with major Chinese cities under lock-down and travel restrictions in place, the world’s second-biggest oil consumer’s demand for the commodity is set to drop substantially. This will not only negatively affect the sector's profitability but also lead to increased price volatility.
The jump in the number of coronavirus cases and deaths outside of China sparked widespread selling in energy stocks, which pushed the Energy Select Sector SPDR – an assortment of the largest U.S. energy companies – down more than 16% last week. Even the broad-based Dow Jones Industrial Average and the S&P 500 index felt pressure from the virus, both losing over 10% for the week.
Opportunity Knocks for Intelligent Investors
While investor confidence is deteriorating, current oil prices already seem to reflect the worst-case scenario. As it is, some speculators continue to bet on upside, citing supply disruptions in Venezuela and Libya. Meanwhile, efforts by China to stimulate the country’s economic growth is also expected to neutralize the hit to crude and support prices.
One of the ways to get it right is to select beaten down stocks. Stressed valuations do not always indicate that the stock has lost all potential. In fact, some could actually make a great buy. But prospective investors need to do adequate research before betting one’s hard-earned money on such stocks.
Often, the herd mentality of investors compels them to dump stocks hovering around their year-long lows. However, the rationale that goes against this view is that stocks might have tumbled over the past due to varied reasons, be it company-specific or macroeconomic.
With the help of our Zacks Stock Screener, we have selected 5 stocks that are trading at or near 52-week lows. In particular, we have taken current price as a percentage of the 52-week high-low range under 10 (a value of 0 indicates that the stock is trading at its 52-week low).
A favorable Zacks Rank #2 (Buy), which justifies a company’s strong fundamentals and potential to overcome the current headwinds, further adds value to these stocks.
You can see the complete list of today’s Zacks #1 Rank stocks here.
5 Energy Stocks to Invest In
Chevron CVX is one of the largest publicly traded oil and gas companies in the world with operations that span almost every corner of the globe. The 2020 Zacks Consensus Estimate for the fully integrated firm, whose shares tumbled to a three-year low last week, indicates 11% earnings per share growth from 2019 level.
Marathon Oil MRO is a leading E&P company with increased focus on low cost-high margin resource plays including Oklahoma, Eagle Ford, Bakken and Northern Delaware. While the firm hit a new 52-week low on Friday, it has surpassed estimates in three of the last four quarters, the average being 190.8%.
Kosmos Energy Ltd. KOS is an oil and gas explorer focused on offshore Ghana, Equatorial Guinea and U.S. Gulf of Mexico. Despite hitting a 52-week low last week, the dual-listed (NYSE & London) company has seen the Zacks Consensus Estimate for 2020 increase 25% over the past 30 days.
Lonestar Resources US Inc. LONE controls more than 57,000 net acres in the Eagle Ford. The company looks attractive at 52-week lows, with the 2020 Zacks Consensus Estimate indicating 100% earnings per share growth over 2019.
World Fuel Services Corporation INT is engaged in marketing and selling marine, aviation, and land fuel products, plus associated services. While the firm hit a new 52-week low on Friday, the 2020 Zacks Consensus Estimate indicates a 2.5% earnings per share growth over 2019.
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Marathon Oil Corporation (MRO) : Free Stock Analysis Report
Chevron Corporation (CVX) : Free Stock Analysis Report
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World Fuel Services Corporation (INT) : Free Stock Analysis Report
Lonestar Resources US Inc. (LONE) : Free Stock Analysis Report
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