A disruptive home front rescued temporarily by the federal debt
limit raise has seen mixed reactions. The debt respite comes at a
time when rising interest rates, to pull up the greenback, is
taking its toll on GDP growth. However, with the U.S. Senate
raising the Treasury Department's borrowing authority, a flight
towards U.S. government bonds and bond proxies would now be more
In the country's oil market, this flurry of bonds has sparked
concerns about the future direction of crude price movement and
poses threat to investor sentiment. Already, a sharp drop in
refinery utilization rates due to seasonal maintenance and higher
production have resulted in a massive stockpile of crude in the
U.S., and a consequent price decline.
Above average crude oil inventory builds will increase the
likelihood of a correction in commodity prices, and we believe a
greater movement in share prices. This is due to the fact that
investor sentiment for most oil plays is determined by earnings and
valuation multiples. As such, investors should bet on asset backed
oil plays or exploration and production (E&P) companies that
the market is yet to fully price in since forward multiples are
lower than prior upcycles.
Pick the Winners Among the Crowd?
Picking the best stocks from the E&P space for one's portfolio
is a fairly simple task. One way to narrow down the list of choices
during this earnings season is by looking at stocks that have the
combination of a favorable Zacks Rank - Zacks Rank #1 (Strong
Buy), #2 (Buy) or #3 (Hold) - and a positive Zacks
Earnings ESP is our proprietary methodology for identifying stocks
that have the best chance to surprise with their next earnings
For investors seeking to apply this strategy to their portfolio, we
have highlighted 3 E&P stocks that may stand out this earnings
Clayton Williams Energy, Inc.
Midland, Texas-headquartered Clayton Williams Energy is engaged in
the exploration for and production of oil and natural gas primarily
in Texas, Louisiana, and New Mexico. As of the end of 2012, the
company had 75.4 million barrels of oil equivalents (MMBOE) of
proved reserves, which were 77% oil and 58% proved developed. It
also added proved reserves of 20.5 MMBOE in 2012, resulting in a
reserve replacement of 365%.
The company is anticipating stable quarterly earnings, which is
expected to be up 4.92% year over year with the Zacks Consensus
Estimate pegged at 64 cents. Analysts have been steadily moving
their quarterly and full year estimates higher, suggesting an
earnings momentum in the quarters to come. The momentum has carried
over into the bourses as well and shares are currently up over 76%
from the start of the year. This will remain a stock to watch out
for the rest of this year.
CWEI currently has a Zacks Rank #2 along with an Earnings ESP of
+25.71%. The firm is scheduled to report earnings on Oct 24.
Whiting Petroleum Corp.
Whiting Petroleum Corporation acquires, exploits, develops and
explores for crude oil, natural gas and natural gas liquids
primarily in the Permian Basin, Rocky Mountains, Mid-Continent,
Gulf Coast and Michigan regions of the U.S.
The company has a long-term earnings expectation of 11.9%. Although
there is some concerns over growth rates, estimates have largely
been moving higher, especially for the upcoming quarter. The firm
has a solid track record of earnings outperformance, and the most
recent estimate suggests that we could see another beat this
quarter from this Delaware corporation.
Whiting Petroleum currently has Zacks Rank #1 along with an
earnings ESP +7.00%. The company is slated to report its
third-quarter 2013 results on Oct 23.
Birmingham, Alabama-based Energen is an independent oil and gas
exploration and production firm. Through its wholly owned
subsidiary, Energen Resources Corp., the company had approximately
750 million barrels of oil-equivalent proved, probable, and
possible reserves at year-end 2012. These all-domestic reserves are
located mainly in the Permian and San Juan basins. The company also
involved in acquisition and development of oil and gas properties
in the U.S.
The firm is currently expecting superb earnings momentum with third
quarter earnings growth above 40%. Analysts have also been
gradually moving their estimates higher for the firm, suggesting
sweeter surprises ahead.
Energen has a Zacks Rank #2 and a +6.56% earnings ESP. The firm is
scheduled to report earnings on Oct 30.
The economics of oil and gas supply and demand is the fundamental
driver of the E&P industry. Previous strength in commodity
prices has enabled E&P stocks to produce good returns to date
in 2013. This is reflected in the SIG Oil Exploration &
Production Index which traded up 33.7% year-to-date. As such,
material share price rises will be rare going forward barring some
outperformers backed by a solid Zacks Rank and a positive Zacks
Earnings ESP. Investors looking to veer off from the political
mayhem this earnings season should be on the look for these.
WILLIAMS(C)ENGY (CWEI): Free Stock Analysis
ENERGEN CORP (EGN): Free Stock Analysis Report
WHITING PETROLM (WLL): Free Stock Analysis
To read this article on Zacks.com click here.