Although oil prices recovered roughly half of their steep fourth quarter loss in the first half of 2019, the energy sector continues to underperform the broader market by about 7.5% year to date (YTD) as investors have kept on the sidelines, deterred by ongoing fears about slowing global economic growth caused by the U.S.-China trade war.
The sector showed renewed buying interest Wednesday, July 10, on the back of oil jumping to a seven-week high. Crude oil for August delivery surged more than 4% after the Energy Information Administration's (EIA) weekly inventory report showed that U.S. crude inventories fell 9.5 million barrels in the week to July 5, significantly more than the 3.1 million-barrel decline analysts had expected. The commodity also remained well bid as major producers evacuated rigs in the Gulf of Mexico ahead of an anticipated storm.
"Oil prices are supported not only by the greater than expected draw in the EIA crude oil inventories but with the evacuation of several platforms in the Gulf of Mexico in advance of a tropical storm, that will curb production," Andrew Lipow, president of Lipow Oil Associates, told CNBC.
Those who see oversupply issues lingering should add these three independent oil and gas stocks to their watchlist. Let's discuss the metrics of each company in more detail and drill down on several interesting trading ideas.
Apache Corporation (APA)
Apache Corporation (APA) is one of the largest independent exploration and production companies in the world. As of December 2018, the Houston-based company had total estimated proved reserves of 581 million barrels of crude oil, 234 million barrels of natural gas liquids (NGLs), and 2.5 trillion cubic feet of natural gas. The upstream explorer increased its U.S. output, which accounts for 58% of total production, by 25% year over year (YoY) in the first quarter. Analysts have a 12-month price target on the stock at $34.84 – representing a 21% premium to Wednesday's $27.47 closing price. The company's shares have a market capitalization of $10.33 billion, offer a 3.67% dividend yield, and are trading 6.55% higher YTD as of July 11, 2019.
Apache shares oscillated within a steep descending channel between April and June. Price broke above the pattern late last month and has since retraced to the channel's upper trendline in early July that now provides key support at $26. Those who take a trade should aim to book profits at the $38 level, where previous price action may present overhead resistance. Manage risk by positioning a stop-loss order beneath the July 9 low and amending it to the breakeven point if the stock rises above the 200-day simple moving average (SMA).
Marathon Oil Corporation (MRO)
With a market cap of $11.37 billion, Marathon Oil Corporation (MRO) engages in the exploration, production, and marketing of crude oil, NGL, and natural gas, with assets in the United States, Equatorial Guinea, the United Kingdom, and Libya. At the end of 2018, the company had net proved reserves of 1.3 billion barrels of oil equivalent and produced roughly 420,000 barrels of oil equivalent. The company's first quarter adjusted net income from operations came in at 31 cents per share, easily surpassing the Street's estimates of 6 cents per share. Marathon cited robust performance from its U.S. exploration and production segment along with reduced expenses for the upbeat result. As of July 11, 2019, Marathon Oil stock pays a 1.45% dividend yield and has fallen 2.37% YTD.
Marathon's share price staged a breakout above a falling wedge in mid-June and has subsequently pulled back toward the pattern's top trendline in recent trading sessions. The stock's 2.66% Wednesday rally indicates that buyers may be planning to move price back to the upside. Traders who enter here should set a take-profit order between $16.50 and $17 – an area where the price encounters resistance from the 200-day SMA and a downtrend line extending back to October 2018. Consider cutting losses if the stock fails to hold this month's low at $13.20.
Noble Energy, Inc. (NBL)
Noble Energy, Inc. (NBL) explores for, develops, and produces crude oil, natural gas, and NGLs worldwide. In late 2018, the $10.67 billion company reported net proven reserves of 1.9 billion barrels of oil equivalent and a production rate of approximately 350,000 barrels of oil equivalent per day. The global energy player posted mixed first quarter results – missing analysts' earnings estimates by 12.5% but topping revenue forecasts by 4.79%. This marked the fourth consecutive quarter that the 87-year-old company has exceeded top-line projections. Trading at $22.32 and issuing a 2.17% dividend yield, the stock has returned 20.20% YTD, outperforming both the industry average and S&P 500 Index by 13.49% and 0.8%, respectively, as of July 11, 2019.
Like Marathon Oil, Noble Energy shares traded within a narrow two-month falling wedge until an upside breakout changed underlying sentiment in mid-June. More recently, the price has pushed above a tight flag pattern, suggesting additional short-term upside. Those who take a long position should bank profits on a move to $28, where the price may find resistance from a horizontal line stretching back over the past 12 months. Think about setting a stop beneath the July 9 low at $21.07 to protect trading capital. The trade offers an enticing risk/reward ratio of 1:4.51 ($1.26 stop loss/$5.68 profit target), assuming a fill at yesterday's closing price.