Energy investors are fired up with West Texas Intermediate (WTI) crude making a dramatic comeback, breaching the $50 per barrel barrier for the first time since July. With no immediate threat from the Federal Reserve about raising interest rates this year we feel that the momentum is here to stay for the commodity.
So investors can try a short-term play using a momentum strategy to add substantial returns to their portfolio. As a caveat, this is a purely speculative strategy and not meant for risk-averse players.
With volatility slated to persist in the broader market til 2016 - the election year - we feel energy stocks that have already has taken substantial hits can only witness an upward momentum. So it will be prudent to invest in stocks from this sector that have shown an upward trend in price.
The Persian Gulf-based members of the Organization of the Petroleum Exporting Countries (OPEC) demand forecast of 1.5 million barrels growth in daily crude this year had a positive impact on global oil prices . Apart from that, the heightening of geopolitical tensions after Russia's willingness to accidentally expand the Syrian civil unrest in Iran through misplaced missiles increased the risk of supply disruption over the long run.
As an immediate outcome, both global benchmarks West Texas Intermediate (WTI) and Brent Crude futures are now trading around the $50 per barrel mark, reviving market optimism on continued momentum.
As a result, Thursday witnessed the Energy Select Sector SPDR XLE gaining almost 2.0%. Big oil components like Chevron Corporation CVX rose 2.03%, ConocoPhillips COP increased 1.83% and Royal Dutch Shell plc RDS.A advanced 1.66%
5 Momentum Picks
The basic driver of a momentum trader is an investing strategy that seeks to capitalize on market volatility. Once a trend is recognized, these investors anticipate it to continue in the same direction, backed by the momentum already behind it.
So with the help of our new style score system , we have identified five energy stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and Momentum Score of "A" that have the maximum chance of riding on this crude momentum.
Arc Logistics Partners LPARCX
Arc Logistics Partners LP is a master limited partnership (MLP) that owns, operates, acquires and develops midstream assets. The partnership operates storage/terminal facilities in the East/West/Gulf Coasts and Midwest regions of the U.S., two transloading facilities, and an interest in an LNG facility.
It offers a great investment potential and can be an impressive choice for momentum investors, given its Momentum Score of A and Zacks Rank #1. Arc Logistics Partners has gained 8.0% over the past five days.
USA Compression Partners, LPUSAC
USA Compression Partners, L.P. is yet another MLP that provides natural gas compression services to domestic customers. These services include engineering, design, operation, service and repair of compressor units. USAC operates in a number of shale plays including the Fayetteville, Marcellus, Woodford, Barnett, Eagle Ford and Haynesville.
It is yet another stock to invest in given its Momentum Score of Aand a Zacks Rank #2. During the trailing four quarters, the partnership's average earnings surprise came at a positive 91.37%.
Ocean Rig UDW Inc.ORIG
Ocean Rig is an international offshore drilling contractor providing oilfield services for offshore oil and gas exploration, development and production drilling, and specializing in the ultra-deepwater and harsh-environment segment of the offshore drilling industry. The company owns and operates 13 offshore ultra deepwater drilling units.
It is a solid bet with a Momentum Score of A and a Zacks Rank #2. On top of that, the average earnings beat for the last four quarters is 222.05%.
Valero Energy Partners LPVLP
Valero Energy Partners LP is a fee-based MLP formed by Valero Energy Corporation VLO to own, operate, develop and acquire crude oil and refined products pipelines, terminals, and other transportation and logistics assets. With headquarters in San Antonio, the partnership's assets include crude oil and refined petroleum products pipeline and terminal systems in the Gulf Coast and Mid-Continent regions of the United States that are integral to the operations of eight of Valero refineries.
Investors can count on the stock because it has a Momentum Score of A and a Zacks Rank #2. Positive earnings estimate revisions are encouraging. Moreover, for the last four quarters, the partnership posted a positive average earnings surprise of 13.25%.
Spectra Energy Partners, LPSEP
Spectra Energy Partners, LP is a Houston-based master limited partnership, formed by Spectra Energy Corp SE . SEP is one of the largest pipeline MLPs in the United States and connects growing supply areas to high-demand markets for natural gas, natural gas liquids and crude oil. These assets include more than 17,000 miles of transmission and gathering pipelines, approximately 170 billion cubic feet of natural gas storage, and approximately 4.8 million barrels of crude oil storage.
It offers a great investment potential and can be an impressive choice for momentum investors, given its Momentum Score of A and Zacks Rank #2. Spectra Energy Partners reported a positive average earnings surprise of 37.96% for the trailing four quarters
Oil is slippery and we never know which way it might flow tomorrow. As long as its prices keep rising, smart investors should build positions in the stocks mentioned above to ride the momentum.