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Fear & Greed Trader
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INDEPENDENT Financial Advisor / Professional Investor- with over 30 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice and Experience to produce Portfolios focused on achieving positive... More
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  • Add Some Oil To Your Portfolio For Value & Growth 0 comments
    May 19, 2013 10:17 AM | about stocks: CXO, ROSE, WLL

    I've suggested investors take a look at the oil service sector for growth and profits with my previous recommendations on ESV and NOV.

    Now lets take a look at what I believe is an undervalued sector that has been ignored by the market. The energy E & P (Exploration and production) companies.

    There is a disconnect between the price of Oil , currently around $94 dollars a barrel and the price of the E & P company stocks. The price action on 5/15 is an indication of what I have seen during the last 3-4 months. WTI crude was down almost $2 during the morning then rallied to close with a small gain on the day. The three stocks that I have been following along with others in the sector all closed lower on the day in spite of the rebound in crude.

    Once the market gets around to recognizing this disconnect , I believe these shares will add additional profits to a portfolio. M & A activity in the sector may be the spark that gets the markets attention. I'm not suggesting purchase on takeover speculation but rather on the sheer value and potential upside that exists.

    Rather than select a single company , I suggest a strategy of at least 2 or three positions to spread your risk while gaining exposure to the sector. Here are three favorites of mine that are currently priced for purchase.

    CXO- Concho Resources - Concho has demonstrated to be a growth play recording 20% growth over the last 5 years. The company operates domestically, with its primary focus in the Permian Basin of Southeast New Mexico and West Texas.

    CXO was punished after it's recent earnings report when production came in under consensus. Further research showed that this was due to timing on completion of 19 wells in the quarter. Mgmn't has reiterated its full year guidance and I believe we will see a nice ramp up in Q2 production. The stock fell from the low 90's to 79 and in the current 80-83 range present a good entry point. I view CXO to have a NAV of approx. $115- 120, suggesting possible 40%+ upside from here.

    Full disclosure I added CXO to my portfolio @ 82.50 and may scale into a full position on any weakness.

    ROSE - Rosetta Resources Operations are concentrated in the Eagle Ford Shale in South Texas, Permian Basin and the Rocky Mountains.

    ROSE shares have lagged it's fundamentals and forecasts with a Q1 beat in earnings, and a excellent balance sheet. ROSE recently jumped from the 46 range to current price of 49 indicating a possible breakout. I am being patient with this one given the status of the overall market. Would look to buy on a slight pullback , more aggressive investors can play the potential breakout and purchase here.

    WLL - Whiting Petroleum's Properties and operations, located in the United States and Canada, are centered in the Rocky Mountains, Gulf Coast, and Permian Basin.

    WLL started 2013 with a solid earnings beat in Q1. The Balance sheet is clean and strong. Shares have meandered here in the low 40's and are attractive to begin accumulation. Whiting has been rumored to be a takeover target and my valuation using a $85 barrel price given their proven reserves equates to somewhere in the $60-65 range.

    Full Disclosure - Wll shares have been in my portfolio since 2012, adding on dips in the low 40's.

    An argument can be made that the market is factoring in a lower oil price as we look out into 2013 and 2014. That may be the case , but to date most forecasts of lower oil have not panned out with the price of WTI holding in the 90's. So while the risk of lower oil prices weighs on the shares , I believe their is an excessive discount being given, these companies represent good value, and if M & A activity comes to town, that may be the catalyst to increased prices.

    Use caution , especially with this runaway market , but be reminded that you are not buying into as stock that has seen a parabolic rise, but rather into an area that represents value and adds diversity to your holdings.

    For those that deploy call writing in their strategy, all three are excellent candidates for selling out of the money upside calls for income and overall returns. i.e CXO June 85 call can be sold for $2.10, so with a purchase here and simultaneous sold call , one can get a 5% return for the month. If not called you have just reduced your purchase price by 2.4%.

    Best of Luck in your investments!

    Disclosure: I am long CXO, WLL.

    Additional disclosure: Stocks for Income means just that at New Highs , but where do we go from here ? E-mail for our current outlook.

    Themes: Oil , E P Companies, Value, Growth Stocks: CXO, ROSE, WLL
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