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5 Energy Stocks to Watch for Gains This Earnings Season

Analysts have made their predictions. Now it's time for the actual results.

On Wednesday, oilfield services behemoth Halliburton Company (HAL) kicked off what is expected to be another tough earnings season for U.S. energy firms. However, if Halliburton's results are anything to go by, this should be a quarter worth watching.

The world's No. 2 provider of technical products and services to drillers of oil and gas wells reported surprise third quarter profit on the back of continued and effective cost management.

Does this indicate that the 2-year oil market downturn is finally close to an end, or is it just a blip before the pessimistic trend in energy sector earnings return?

Q3: Stagnant Oil Prices

Unlike the last quarter, where oil advanced more than 26% sequentially to notch up the best quarterly percentage gain in 7 years, the Jun-Sep 2016 period turned out to be a rather flat one with crude barely advancing. In fact, the West Texas Intermediate (WTI) crude futures during the third quarter hovered around the $45 per barrel mark, flat from the second quarter and down from $46.50 in the same period last year.

Depressed Prices Leads to Low Expectations for Q3

Despite oil's massive recovery since February and all the hoopla surrounding the OPEC producer's agreement, it's still only just above $50 - about half the level of two years ago and far below the breakeven price for many energy companies. Therefore, the commodity is not yet out of the woods.

Even the industry, which is cutting deeper, seems to think so. Companies around the world continue to slash jobs, defer/cancel projects worth billions of dollars and renegotiate contracts with suppliers to help protect their balance sheets.

Consequently, things are looking bleak for the upcoming Q3 earnings season. According to the Zacks Earnings Trends report, the Oil/Energy sector's earnings are expected to crash 71.7% from the third quarter 2015 levels, while the top-line is likely to show a drop of 12%. This compares unfavorably with the overall S&P 500 index, which is expected to see a modest 1% decline over the quarter.

How to Identify the Outperformers?

Despite the miserable figures, there are a number of companies that are likely to beat our third quarter earnings estimates.

Investing in such companies can fetch handsome returns for investors. This is because a stock generally surges upon an earnings beat.

But 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 better-than-expected earnings.

While it is impossible to be sure about such outperformers, our proprietary methodology - Earnings ESP - makes it relatively simple.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

5 Stocks to Invest In

With the help of the Zacks Stock Screener , we have zeroed-in on five energy stocks that sport a Zacks Rank #1 (Strong Buy) or 2 (Buy) and flaunt a positive Earnings ESP. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Archrock Partners L.P. ( APLP ): Houston, Texas-based Archrock Partners is a leading provider of natural gas contract compression services to clients spread all over U.S.

Zacks Rank #1

Earnings ESP: +8.33%

Expected Earnings Release Date: Nov 1

CONE Midstream Partners L.P. ( CNNX ): Headquartered in Canonsburg, PA, CONE Midstream Partners is a master limited partnership focused on natural gas and condensate gathering in the Marcellus Shale in Pennsylvania, Ohio and West Virginia.

Zacks Rank #1

Earnings ESP: +2.7%

Expected Earnings Release Date: Nov 4

Comstock Resources Inc. ( CRK ): Frisco, Texas-based Comstock Resources is an independent oil and gas exploration and production company engaged in the acquisition, exploration, and development of oil and gas properties.

Zacks Rank #2

Earnings ESP: +11.54%

Expected Earnings Release Date: Nov 8

Diamondback Energy Inc. ( FANG ): Midland, TX-based Diamondback Energy is an independent exploration and production company engaged in the acquisition, finding and development of unconventional onshore oil and gas properties.

Zacks Rank #2

Earnings ESP: +5.88%

Expected Earnings Release Date: Nov 1

Baker Hughes Inc. ( BHI ): Houston, TX-based Baker Hughes is one of the major oilfield service companies in the world, providing an array of services to the global oil and gas industry.

Zacks Rank #2

Earnings ESP: +4.65%

Expected Earnings Release Date: Oct 25

Bottom Line

Despite the sharp volatility in oil prices , there are certain energy companies that are primed to outperform the Zacks Consensus Estimate. They certainly hold the potential to make investors standout gains even in these capricious times.

Where Do Zacks' Investment Ideas Come From?

You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buy" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 "Strong Sells" and other private research. See the stocks free >>

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ARCHROCK PTNRS (APLP): Free Stock Analysis Report

CONE MIDSTREAM (CNNX): Free Stock Analysis Report

COMSTOCK RESOUR (CRK): Free Stock Analysis Report

DIAMONDBACK EGY (FANG): Free Stock Analysis Report

BAKER-HUGHES (BHI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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