A New Leading Sector In The Market: Oil And Gas Exploration

Oct.30.13 | About: EOG Resources, (EOG)

I believe in being focused in the best areas of the market at any given point in time. Currently, the leading sectors in the market continue to be, internet, biotech, and pharmaceuticals. And recently a new leadership sector has entered into the fray: Oil and Gas Exploration stocks.

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Data from Best Stocks Now! App

This is my current top eight-ranked sectors out of the 60 that I monitor. The ranking is based on short-term, intermediate term, and long-term performance.

The one year performance of the sector is shown in the chart below of the SPDR S&P Oil & Gas Exploration & Production exchange-traded fund (NYSEARCA:XOP), which I use as a proxy to track the sector.

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I have had heavy exposure to the pharmaceuticals and tech stocks all year long. That has really helped my performance, as this has been a very narrow market in 2013.

If you have not been 100% in U.S. equities this year, you have suffered.

More specifically, if you have not been in small and mid-cap U.S. equities this year, it has hurt your overall performance.

And even more specific yet, if you have had heavy exposure to the pharmaceutical, biotech, and tech stocks, you have not had as good of a year as you could have.

Well, now we have a new leading sector showing up on the scene and I have been increasing my exposure to it.

I cannot give you the exact reason why the Oil and Gas Exploration sector has exploded all of a sudden. But, I can give you numerous examples of individual stocks like Bonanza Creek Energy (NYSE:BCEI), Helmerich & Payne Inc. (HP), and Pioneer Natural Resources Company (PXD) breaking out all over the place.

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I have recently added EOG Resources (NYSE:EOG) to the Conservative Growth portfolios that I manage.

Data from Best Stocks Now! App

This $50 billion dollar market cap company is in Houston, Texas. It is sure doing a whole lot better than the Houston Texans football team this year!

EOG engages in the production and marketing of crude oil and natural gas in the US, Canada, Trinidad, the UK, and China. Over the last few years this stock has been booming-it was trading at only $45 in 2009 and today it is at $185 per share.

Performance

Let's take a look at the performance of EOG:

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Data from Best Stocks Now! App

Over the last ten years EOG has delivered 25% per year while the market has delivered 6%. Over the last five years EOG has delivered 24% per year while the market has delivered 14% during the same timeframe.

Over the last three years EOG has delivered 25% per year, while the market has delivered 14%. And over the last 12 months EOG is up 66% while the market is only up 22%.

As you can see, the shares have had superior short-term, intermediate-term, and long-term performance.

When I compare the performance of EOG against the other 3,600 or so other stocks that I track, it gets an "A-"performance grade and "A" momentum grade.

EOG Resources passes my performance test. It is one of the top-performing large caps in the entire market. In fact it is currently one of my top-ranked large cap stocks. You can look it up in my app as it lists stock rankings for each category.

Valuation

While I like stocks that are performing well on a relative performance basis. I also require good value in the stocks that I buy. This is a tall order, but not an impossible one.

I find the valuation to be not bad on EOG. It's not the cheapest stock in town but it still makes sense to me from a valuation point-of-view.

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Data from Best Stocks Now! App

Earnings are projected to grow by 40% this year and 18% next year. EOG is trading at about 20 times forward earnings and is also expected to grow those earnings by 12% per year over the next five years. This makes for a PEG ratio of 1.66.

When I take the earnings estimates next year of $9.32 per share and carry them out over the next five years, and then apply what I think is a reasonable multiple that the company deserves, I come up with a target price of $305 per share five years from now. The stock is currently only trading at $185 per share. It has ample upside potential. EOG passes my valuation test.

Relative performance and value are a potent combination, but wait we are not done yet.

Stock Chart

My final requirement is a healthy stock chart!

I don't buy sideways trends, I deplore downtrends, and I avoid rolling over patterns at all cost. I like good healthy uptrends or breakouts that still make sense from a valuation point-of-view.

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EOG has a fantastic chart-it's hitting new highs!

Out of 3,595 stocks that I follow EOG comes in at #101. It is a stock that I own and a great example of a Best Stock Now!

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Data from Best Stocks Now! App

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Data from Best Stocks Now! App

Disclosure: I am long EOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.