Contrarian Buys Can Be a Rewarding Strategy for Energy Investors

by: Kurt Wulff

We initiate a new designation, “Contrarian Buy”, for previous buy recommendations, ExxonMobil (NYSE:XOM), Marathon Oil (NYSE:MRO), Woodside Petroleum (OTCPK:WOPEY), Petrobras (NYSE:PBR), and Imperial Oil (NYSEMKT:IMO) that trade below their respective 200-day average stock prices. We like the long-term prospects for the stocks, but can’t rule out a continuing medium-term downtrend for a while. Yet, prices can change quickly, faster than we can change our ratings.

Provided the downtrend doesn’t persist, buying as a contrarian can be a rewarding strategy. Contrarian buys should be lower McDep Ratio stocks with the extra appreciation potential as the reward for more patience. Meanwhile, the trend in long-term oil price continues upward with the current quote of $84 a barrel above the 40-week average of $82. Six-year natural gas is trendless with the current quote of $6.50 compared to the 40-week average of $6.70. One-year natural gas is in a rising trend indicated by a current quote of $5.90 a million btu compared to the 40-week average of $5.40.

Originally published on February 2, 2010.