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5 Oil Stocks that Outperformed the Commodity in December

Nilanjan Choudhury

Posting its second annual gain in a row, oil prices closed 2017 up more than 12%. The last week of the year saw U.S. oil benchmark attain its highest settlement since June 2015. The commodity was supported by a variety of catalysts, including positive vibes from the OPEC-led production cut extension, lower inventory overhang and a flat rig count.

What’s encouraging is that the price appreciation extends an upbeat tone in crude trade into 2018 following the fourth monthly gain in a row by the futures contracts. To be precise, the commodity rose about 5.3% in December to end the month and year at $60.42 per barrel.

5 Reasons for Oil's December Surge

Sharp Inventory Drawdowns: Investors have pinned hopes of recovery over the recent U.S. Energy Department's inventory releases that show multiple weeks of strong inventory draws in the domestic crude stockpiles – pointing to a slowdown in shale output. The nation's oil stockpiles have shrunk in 30 of the last 38 weeks and are down more than 100 million barrels since April.

Production Cut Deal Extension: One of the significant reasons why the U.S. oil benchmark soared nearly 17% last quarter revolved around expectations that OPEC and other major producers will agree to expand their output-cut deal beyond March. True to predictions, the coalition prolonged the current dynamic for another nine months to the end of 2018. The agreement, now renewed twice, keeps 1.8 million barrels a day (or 2% of global supply) off the market in an attempt to clear a supply glut.

Drop in OPEC Output: Meanwhile, the producer group pumped 32.5 million barrels daily in November, about 133,500 barrels a day less than their October output and the lowest level since May. The group’s success in capping production has shrunk the huge global stockpiles of oil and supported prices.

Steady Rig Count: Data showing the number of U.S. oil rigs remaining essentially flat over the past few weeks also helped cement oil’s December gains. An early indicator of future crude volumes, rigs engaged in oil exploration and production in the U.S. totaled 747 for the week ending Dec 29 – down by two from the previous month and importantly, a sign of brake in shale oil production.

Other Factors: An explosion at a Libyan crude pipeline and an unplanned shutdown in the North Sea's 450,000 barrels-per-day Forties pipeline, were also price drivers.

How to Identify the Outperformers?

The strong December rally does not necessarily indicate that all energy scrips would be wise picks. Moreover, with a wide range of energy firms thronging the investment space, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver attractive returns. While it is impossible to be sure about such outperformers, this is where the Zacks Rank, which justifies a company’s strong fundamentals, can come in really handy.

In particular, we have shortlisted 5 companies that have outperformed oil prices over the past 4 weeks, and have a Zacks Rank of #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Finally, the chosen ones have VGM Score less than or equal to B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.

Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or #2 offer the best upside potential.

5 Choices

Statoil ASA STO, a #1 Ranked stock, is our first pick. A major international integrated energy company with operations in all major hydrocarbon-producing regions of the world and an upstream focus on the Norwegian Continental Shelf, Stavanger, Norway-based Statoil has a VGM Score of A. Also, shares of the company have gained 10.1% in the past four weeks.

Our second choice is Lonestar Resources US Inc. LONE – an oil and gas exploration and production company with primary focus on the Eagle Ford Shale in South Texas. This Fort Worth, TX-based Zacks Rank #1 stock, sporting a VGM Score of A, has risen 26.5% in past month.

Then we have Northern Oil and Gas, Inc. NOG. Headquartered in Minnetonka, MN, Northern Oil and Gas is a non-operator explorer and producer with primary focus on the Williston Basin in North Dakota and Montana. This Zacks Rank #1 stock, sporting a VGM Score of B, is up 37.3% in the past four weeks.

Halliburton HAL is another company we recommend. Headquartered in Houston, TX, Halliburton is one of the largest oilfield service providers in the world, offering a variety of equipment, maintenance, and engineering and construction services to the energy sector. The company carries a Zacks Rank of 2 with a VGM Score of B. Also, shares of Halliburton have gained 16.2% since the start of December.

Finally, there is Sanchez Energy Corp. SN. Headquartered in Houston, TX, Sanchez Energy is an independent exploration and production company with majority of its properties in the Eagle Ford Shale in South Texas. The Zacks #2 Ranked stock, which has gained 9% in past month, has a VGM Score of A.

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Halliburton Company (HAL) : Free Stock Analysis Report
Statoil ASA (STO) : Free Stock Analysis Report
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Northern Oil and Gas, Inc. (NOG) : Free Stock Analysis Report
Lonestar Resources US Inc. (LONE) : Free Stock Analysis Report
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