“It is one of the great paradoxes of the stock market that what seems too high usually goes higher and what seems too low usually goes lower” – American entrepreneur and stockbroker William J. O'Neil.
In the investment world, chasing the fad will only make lose out on opportunities to make profit. The crowd simply follows the market trend with the belief that if a stock moves up, it will continue to trend higher. The same theory is applied on stocks in the bearish territory.
Meanwhile, a smart investor will opt for value investing which states that the ideal time to buy a stock is when everybody is selling. If an investment instrument is found to have strong fundamentals but the market hasn’t got a whiff of it, it would be judicious to buy the stock when most are dumping it. In other words, value investors will buy and wait for the crowd to catch up.
The same goes for the energy sector as crude prices have touched rock bottom on oversupply concerns. Investors willing to make money from the sector amid the oil turmoil should identify stocks selling near or at their 52-week low mark.
Oil Enters Bearish Territory
Crude is trading below the $45-a-barrel mark on global oversupply worries. On Jun 20, West Texas Intermediate (WTI) crude touched the lowest level since last September. This has questioned the effectiveness of OPEC’s compliance with its landmark production cut deal.
As per the weekly rig count report issued by oilfield services player Baker Hughes Incorporated (BHI), there has been a rise in U.S rig count for 23rd consecutive weeks.
Higher supply from Libya and Nigeria has also been weighing on crude prices. The countries belong to OPEC but were exempted from the output cut accord. Crude production in Libya surged by 50,000 barrels per day to 885,000 barrels after the dispute between National Oil Corporation (NOC) and Wintershall – energy firm of Germany – was settled, per Reuters. In fact, for the first time since 2014, production level in Libya crossed 800,000 barrels a day. Also, per Reuters, the export of Bonny Light crude of Nigeria is expected to touch 226,000 barrel per day during the month of August, much higher than last July’s mark of 164,000 barrels per day.
Time to Start Building Position
As the fate of most of the energy companies are positively correlated with oil prices, many oil companies have fell to their 52-week lows following the freefall in crude. But, a correction in the commodity market will drive oil again.
Many analysts believe that if oil dropped to $40 a barrel, smaller drillers will be forced to discontinue operations in the comparatively less productive crude resources. Eventually, oilfield service firms like Schlumberger Limited SLB, Halliburton Company HAL and Weatherford International plc WFT will have to cut down on their activities.
It is to be noted that analysts at UBS Group AG in Zurich predict that most of the shale drillers in the U.S. will suffer at $45-per-barrel oil. If crude touches that low, there are slim possibilities of a rise in production for all the exploration and production companies in all the U.S. prolific oil plays. Even the Permian Basin, where cost of production is low and infrastructure is readily available, will see a halt in production growth when oil tanks to $40.
Hence, if shale drillers stop bumping up production in the U.S., crude will start its northward journey. Here, we need to mention that investors buying valuable oil stocks will get rewarded if crude gains strength.
5 Stocks to Scoop Up
With the help of our proprietary Stock Screener, we have shortlisted five stocks that are trading near a 52-week low. In particular, we have taken current price as a percentage of the 52-week high-low range under 20 (a value of 0 indicates that the stock is trading at its 52-week low).
A favorable Zacks Rank #1 (Strong Buy) or 2 (Buy), which justifies a company’s strong fundamentals and potential to overcome headwinds, further adds value to stocks. You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in Calgary, Canada, Canadian Natural Resources Limited CNQ is an oil and gas exploration and production company with core focus on resources in the Western Canada, off the coast of Africa and the U.K. part of the North Sea.
Canadian Natural currently sports a Zacks Rank #1. We expect the company to witness year-over-year earnings growth of 724.8% in 2017. Also, over the last 60 days, the Zacks Consensus Estimate for second-quarter earnings has been revised upward.
Houston, TX-based Enbridge Energy Partners LP EEP, a master limited partnership (MLP), is engaged in the gathering, processing and transmission of natural gas and crude oil.
The partnership, having a Zacks Rank #1, has surpassed the Zacks Consensus Estimate in three of the last four quarters, the average positive earnings surprise being 38.22%. On top of that, the stock is poised to gain over 22% year over year in 2017.
Seadrill Partners LLC SDLP – headquartered in London – is the owner and operator of offshore drilling units. Presently, the partnership carries a Zacks Rank #2.
The partnership managed to beat the Zacks Consensus Estimate in all the prior four quarters, having an average positive earnings surprise of 51.34%. Moreover, over the last 60 days, the Zacks Consensus Estimate for second-quarter earnings has been revised upward.
Headquartered in Midland, TX, Legacy Reserves LP LGCY is engaged in oil and gas exploration and production activities in the Permian Basin, East Texas, Rocky Mountain, and Mid-Continent resources of the U.S.
Legacy Reserves, with a Zacks Rank #2, posted an average positive earnings surprise of 11.84% for the last four quarters. Also, the stock is expected to gain almost 86% year-over-year.
Seacor Holdings Inc. CKH – based in Fort Lauderdale, FL – is the operator of diversified fleet of offshore support vessels which support oil and gas exploration and production operations all over the world.
The company presently has a Zacks Rank #2 and will likely see a 100% rise in earnings during 2017.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation. See Them Free>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Click for Free Enbridge Energy, L.P. (EEP) Stock Analysis Report >>
Click for Free Weatherford International PLC (WFT) Stock Analysis Report >>
Click for Free Canadian Natural Resources Limited (CNQ) Stock Analysis Report >>
Click for Free Schlumberger N.V. (SLB) Stock Analysis Report >>
Click for Free Halliburton Company (HAL) Stock Analysis Report >>
Click for Free SEACOR Holdings, Inc. (CKH) Stock Analysis Report >>
Click for Free Seadrill Partners LLC (SDLP) Stock Analysis Report >>
Click for Free Legacy Reserves LP (LGCY) Stock Analysis Report >>
To read this article on Zacks.com click here.