Energy stocks have underperformed the S&P 500 by about 14% so far this year as oil prices struggle to gain traction amid fears of a global economic slowdown caused by the ongoing trade spat between the United States and China – the world's two largest economies.
The embattled sector may get a much-needed boost this week after a swarm of explosive drones attacked the world's biggest oil processing plant in Saudi Arabia. The attack, which the United States blames on Iran, threatens to affect about 5 million barrels per day of crude production – roughly half of the kingdom's output, or 5% of global oil supply.
"We have never seen a supply disruption and price response like this in the oil market," Credit Suisse energy analyst Saul Kavonic told Bloomberg via email. "Political risk premium is now back on the oil market agenda," he added.
With tensions already running high in the region after Iran allegedly attacked two oil tankers in the Strait of Hormuz and downed a U.S. drone earlier in the year, this weekend's attack on crucial energy infrastructure is likely to send prices skyrocketing. Crude oil futures for October delivery (CL=F) surged over 15% higher in early Monday trade but retreated slightly after U.S. President Donald Trump tweeted that he was authorizing the release of oil from reserves to keep markets "well-supplied." Even so, oil prices remain on track for their biggest one-day gain in more than three years.
Those who anticipate higher oil prices in the days and weeks ahead should monitor the performance of the three independent oil and gas companies outlined below. Let's drill down on some of the key metrics of each company and explore several trading opportunities.
Pioneer Natural Resources Company (PXD)
With a market capitalization of $22.64 billion, Pioneer Natural Resources Company (PXD) operates as an independent oil and gas exploration and production company in the United States. The Irving, Texas-based firm held reserves of 977 million barrels of oil equivalent (mboe), with net production of 320 mboe at year-end 2018. The energy giant performed solidly in the second quarter, reporting adjusted earnings per share (EPS) of $2.01 to beat analysts' consensus estimate by 13 cents per share. Increased production in the Permian Basin fueled the better-than-expected result. Although Pioneer Natural Resources stock has only returned a meager 3.22% year to date (YTD), it has gained 5.51% over the past month as of Sept. 16, 2019. Investors receive a 1.35% dividend yield.
Since setting a 2019 high on April 22, Pioneer shares trended sharply lower for the next three months amid fears of an escalation in the U.S.-China trade war slowing global economic growth. Sentiment has turned more bullish this month, with the price now trading above a four-month trendline and the 50-day simple moving average (SMA). Those who buy here should aim to book profits near $162, where price may encounter overhead resistance from a multi-year horizontal line. Manage risk by placing a stop-loss order beneath the Sept. 12 low at $129.35 and raising it to the breakeven point if the stock climbs above the 200-day SMA.
Apache Corporation (APA)
Houston, Texas-headquartered Apache Corporation (APA) engages in the exploration and production of crude oil, natural gas, and natural gas liquids. Its assets sit located in North America, Egypt, and the North Sea. The $9.15 billion energy player reported reserves of 1.2 billion barrels of oil equivalent, with net production of 466 mboe at the end of last year. Apache surpassed Wall Street's second quarter top- and bottom-line expectations, driven by robust international production. However, the reported figures decreased by 16.9% and 78%, respectively, from the year-ago quarter due to lower commodity prices. The company's stock offers an enticing 4.17% dividend yield and has jumped 11% over the past month, outperforming the industry average by 6% over the same period as of Sept. 16, 2019.
Apache shares trended higher for the first four months of the year before running into resistance at the 200-day SMA. Between April and mid-August, the bears remained in control of the action, with the stock printing a YTD bottom at $19.44 on Aug. 15. More recently, buyers have returned from the sidelines to push the price above a short-term downtrend line and 50-day SMA, which may trigger further buying this week, especially as supply concerns caused by the drone attacks mount. Traders who go long should set a take-profit order near $29, where the price runs into a confluence of resistance from a horizontal trendline and the 200-day SMA. Consider placing stops below an area of support at $23.
Cimarex Energy Co. (XEC)
Cimarex Energy Co. (XEC) operates as an independent oil and gas exploration and production company primarily in Oklahoma, Texas, and New Mexico. At year-end 2018, the energy company's reserves totaled 591 million barrels of oil equivalent, with net production of 221 mboe per day. The 17-year-old energy company delivered EPS of $1.20 on revenue of $546 million for the June quarter. Despite the top- and bottom-line results missing Street projections, analysts have a 12-month price target on the stock at $70.24, representing 46% upside from Friday's $47.95 close. Cimarex also looks attractive from a valuation perspective, trading at about seven times forward earnings compared to the industry average multiple of around 13 times. As of Sept. 16, 2019, the company's shares have a market value of $4.87 billion, issue a 1.81% yield, and are trading down a disappointing 21.28% on the year. They have performed better over the past month, however, gaining 13.59%.
The Cimarex share price tracked consistently lower between February and August, outpacing losses in other energy stocks and the oil price. Over the past two months, signs of slowing seller momentum have emerged. As the stock made its YTD low on Aug. 27, the relative strength index (RSI) made a shallower low, forming a bullish divergence between price and the indicator. Also, like the two stocks discussed above, Cimarex has broken out above a downtrend line and the 50-day SMA, which may result in further buying this week. Those who enter should consider scaling out at $55 and $65 – both significant resistance levels. Protect capital by placing a stop underneath Friday's low at $44.95