Best Near-Term Price Gains Ahead For Integrated Oil & Gas Producing Stocks

Includes: SPY
by: Peter F. Way, CFA


Market-makers (MMs) hedge clients' (big-money-fund portfolio managers) trades in these stocks every day to protect their firm's capital temporarily put at risk filling large volume trade orders.

That price-change insurance tells just how far the MMs expect those clients, who have the money muscle to make things happen, may push prices - both up and down.

Histories of these daily forecasts, many made during the past five years or more, at all levels of market enthusiasm and despair, provide expectations for the next few months.

Are you looking for better prospects among these stocks than ones you now have? Or for new entries into this set? Risk~Reward trade-off comparisons here may help you choose.

We have a special way of looking at stocks and ETFs

If you have seen this explanation before, please jump to the next bold-faced headline.

Technology advances in communications and information have transformed the way securities markets operate, and the way major investors behave as a result. Prices of equities now normally gyrate during one-year elapsed periods in ranges that are typically multiples of the underlier's trend growth.

Which means that during part of the year period their prices are retreating, and are consuming investments of time that cause the "growth" trend rates to be far less than what their better progress periods provide.

Information technology advances encourage investment professionals (the market-making (MM) community) to protect the capital they must put at risk to do their jobs, and those actions cause the markets for equities and derivatives to become more integrated than they were in much of the 20th century.

So we study what the Pros' behavior causes to happen in the price-change "insurance" derivatives markets to understand just how far it is reasonable to believe specific stock and ETF prices may move, both up and down, in the next few months.

This analysis has been conducted without material change daily for over a decade on more than 2,500 widely-held and actively-traded stocks and ETFs. The resulting price range forecasts provide an actuarial history (unmatched elsewhere in the investment community) of subsequent market prices, as testimony to the strength or weakness of the forecasts made earlier.

Near-term price gains are most important to investors who are now either starting out in building a portfolio's wealth and exploring how it may best be done, or investors who have come to realize that plans made years earlier are unlikely to be met at current rates of investment wealth accumulation.

Active investing, where capital is constantly put to work in the best odds-on situations to deliver profit within foreseeable time horizons, is the strategy most likely to produce what is needed, at least risk.

What's Going on in the Market for Oil Stocks Now?

Two weeks ago, we looked at this group as crude oil was staging a small recovery, one that investors hoped marked a cyclical turn to higher sustainable price levels. Stock prices at that point reflected common hopes, so there were no competitively valued issues to prefer over other more attractive near-term investment candidates.

In the interim, there has been an interlude of lower crude prices and a diminished enthusiasm over longer-term commodity price levels for energy. The stocks retained much of their earlier advances and now are even less competitive than they were earlier.

The Integrated Oil & Gas Producer Stocks

Figure 1

(Used with permission)

Each stock is positioned in this map by its intersection of upside price change forecast on the green horizontal scale and the price drawdown exposures (on the red vertical scale) typical after prior forecasts like today's. Any issue above the dotted diagonal has more potential risk than return at its present price.

Compared with the earlier review, this picture sees issues moving to larger downside prospects, with little or no improvement in prospects for price gains.

Since price-change risk is a dynamic, not a constant, in time, these exposure relationships will change. But right now there are only minimal opportunities for gains. What else might create trouble? Let's look at how today's forecasts have performed previously.

Other Useful Details from Similar Prior Forecasts

Figure 2

Click to enlarge


Columns (5) and (6) are the source for Figure 1 coordinates. The (7) metric tells what % of the (2) to (3) range lies below (4). It discriminates among (12) prior forecasts to select the similar sample from which columns (8) to (14) data is provided. (13) compares (5)'s promise to (9)'s prior delivery; (14) compares (5) to (6). (15) is a figure of merit combining the several qualitative measures into an odds-weighted, risk-conditioned number.

For this exercise, we ranked the top equity interests by the (15) figure of merit. Hmm. The only stock with a positive f.o.m. result would never come close to being on the current Top-20 daily-ranked list. Prospects for the remainder of the group continue to be abysmal.

The blue rows at bottom of Figure 2 aggregate this set of stocks for comparison with a total population of all stocks and aggregates similarly analyzed this day. The SPDR S&P 500 Trust ETF (NYSEARCA:SPY) provides an investable market index comparison. The Top-20 stocks aggregate indicates how most-competitive capital-gain investment candidates in the population compare.

YTD in 2016, these lists produced over 2,300 forecasts, reaching closeout targets or time limits, with 77% of them recovering from average worst-case price drawdowns of -6% to produce net CAGRs overall of +36% while a buy and hold of SPY gained only +11%.


None of the stocks in this set provide able competition in the potential near-term capital gain contest. Clue: Look for (15) scores equal or better than half of the Top-20 average score in that column.

Our mission is to identify high-probability price gains in the next 3-6 months. These scores are impacted by price changes which are likely to make a difference as time progresses, perhaps making otherwise unattractive stocks now more appealing later.

Additional disclosure: Peter Way and generations of the Way Family are long-term providers of perspective information (earlier) helping professional and (now) individual investors discriminate between wealth-building opportunities in individual stocks and ETFs. We do not manage money for others outside of the family but do provide pro bono consulting for a limited number of not-for-profit organizations.

We firmly believe investors need to maintain skin in their game by actively initiating commitment choices of capital and time investments in their personal portfolios. So our information presents for their guidance what the arguably best-informed professional investors, revealed through their own self-protective hedging actions, believe is most likely to happen to the prices of specific issues in coming weeks and months. Evidences of how such prior forecasts have worked out are routinely provided. Our website, has further information.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.