Energy investors are all fired up with West Texas Intermediate (WTI) crude making a dramatic comeback, breaching the $50 per barrel barrier and still going strong. With no immediate threat from the Federal Reserve of raising rates this year we feel that the momentum is here to stay for the commodity. So investors can try out a short-term play using a momentum strategy to add substantial returns to their portfolio. As a caveat, this is a purely speculative strategy and strictly not meant for risk-averse players.
With volatility slated to persist in the broader market till Nov 2016 – the election year – we feel energy stocks that have already been substantially hit can only witness an upward momentum. So it will be prudent to invest in stocks from this sector that have shown an upward trend in prices.
Crude Momentum
The commodity benefited from lower U.S. crude oil inventories coupled with supply outages round the globe like in Nigeria and a spike in Chinese demand. This can be termed as a total reversal of fortune for crude which saw a 12-year low mark of $26.21 per barrel in mid-February. From there the wheels of fortune witnessed a total reversal, resulting in both Brent and WTI breaching the $51 per barrel and still looking up. In fact, this recent momentum resulted in WTI crude breaching the $50 benchmark for the first time since Jul 2015.
Reflecting the renewed strength, the fear-gauge CBOE Russell 2000 Volatility Index (RVX) – a popular measure of volatility – declined 6.46% over the past one month, thus easing apprehensions of a volatile market in the near future. Hence, we believe that this is the perfect time for investors to buy stocks which produced high returns in the last one month. This was aptly reflected over the past week when big oil components like Royal Dutch Shell plc RDS.A advanced 8.35%, ConocoPhillips COP increased 7.78% and Eni SpA E rose 6.35%.
Moreover, the news of the oil price rise is good for oil drillers as their expected rig demand is positively correlated with crude prices. To say it in another way, the higher the price of oil, the more the exploration and production activities take place. Not only will a step-up in activities bode well for the industry, these will also automatically translate into greater rig demand. Energy investors stand to gain from both.
5 Momentum Picks
The basic fundamental driving a momentum trader is an investing strategy that seeks to capitalize on market volatility. Once a trend is recognized, these investors anticipate it to continue in the same direction, backed by the momentum already behind it.
So with the help of our new style score system, we have picked five stocks that promises momentum at the moment. Not only do these stocks have a Zacks Rank #1 (Strong Buy) or #2 (Buy), they also have a momentum score of ‘A’.
Boardwalk Pipeline Partners, LP BWP
Boardwalk Pipeline Partners is a midstream master limited partnership that provides transportation, storage, gathering and processing of natural gas and liquids for its customers.
It offers a great investment potential and can be an impressive choice for momentum investors, given its Momentum Score of A and a Zacks Rank #1. Boardwalk Pipeline Partners witnessed a positive average earnings surprise of 15.74% for the trailing four quarters.
Hercules Offshore, Inc. HERO
Headquartered in Houston, Hercules Offshore owns and operates a fleet of jackup rigs and liftboats. The company offers a range of services to oil and gas producers to meet their needs during drilling, well service, platform inspection, maintenance, and decommissioning operations in several key shallow water provinces around the world.
Investors can count on the stock because it has a Momentum Score of A and a Zacks Rank #2. Positive earnings estimate revisions are encouraging. Moreover, for the last four quarters, the company delivered a positive average earnings surprise of 16.87%.
Columbia Pipeline Group, Inc. CPGX
Columbia Pipeline Group operates approximately 15,000 miles of strategically located interstate pipeline, gathering and processing assets extending from New York to the Gulf of Mexico, including an extensive footprint in the Marcellus and Utica shale production areas. It also operates one of the nation's largest underground natural gas storage systems.
Columbia Pipeline Group offers a great investment potential and can be an impressive choice for momentum investors, given its Momentum Score of A and a Zacks Rank #2. It came up with a positive average earnings surprise of 17.25% for the trailing four quarters.
McDermott International, Inc. MDR
McDermott International is a leading provider of integrated engineering, procurement, construction and installation services for upstream field developments worldwide. The company delivers fixed and floating production facilities, pipelines and subsea systems from concept to commissioning for complex Offshore and Subsea oil and gas projects to help oil companies safely produce and transport hydrocarbons.
Investors can count on the stock because it has a Momentum Score of A and a Zacks Rank #1. Positive earnings estimate revisions are encouraging. Moreover, for the last four quarters, the company delivered a positive average earnings surprise of 506.54%.
North Atlantic Drilling Limited NADL
North Atlantic Drilling offers harsh environment offshore drilling services to the oil and gas industry primarily in Norway and the United Kingdom. The company provides drillships, semi-submersibles, jackups, harsh environment and ultra-deepwater units. North Atlantic Drilling Ltd is based in Hamilton, Bermuda.
This is yet another stock to invest in given its Momentum Score of A and a Zacks Rank #1. During the trailing four quarters, the company’s average earnings surprise came at a positive 80.90%.
Bottom Line
Oil is slippery and we never know which way it might flow tomorrow. So, as long as its prices keep rising, smart investors should build positions in the stocks mentioned above to ride on the momentum.