Stressed Out: Don't Be Fooled By Chesapeake's Rally

 | Jan 27, 2016 | 2:07 PM EST
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This article is part of a Real Money series on 20 distressed companies investors should consider adding to their distressed watch list.

Oil is rallying and taking energy stocks along for the ride -- including many of the energy names on Real Money's "Stressed Out" index. But a day's upswing in equity markets doesn't mean the companies' problems are in the past. 

Brent crude rallied above $33 a barrel on Wednesday following a Reuters report, that said Russia and OPEC were planning to discuss cutting production in an effort to bolster oil prices. The report came days after oil plunged on news of higher inventories.

It goes without saying that the market has been fickle and prone to react -- or, perhaps, overreact -- to any news. For this reason, it is important to focus on the debt of these companies before making investment decisions.

Rising oil prices would certainly help these companies in meeting their hefty debt obligations, but the rally has to be sustained. Many of the companies on this list saw their credit ratings cut -- many below investment grade -- long before oil was hovering around $30 a barrel and it could take some time before oil hits price levels that are more sustainable for these companies.

And while the equity markets are soaring, the bonds are still quoted at deep discounts and have seen little movement during the recent stock rally. (Bonds do not trade daily as stocks do, so a lack of price movement is not entirely surprising.)

As of midday trading, the movement in energy-related "Stressed Out" companies is as follows:

  1. Chesapeake Energy (CHK): up 11%
  2. Encana (ECA): up 4%
  3. McDermott (MDR): down 1%
  4. Petrobras (PBR): up 12%
  5. Southwestern Energy (SWN): up 4%
  6. Tidewater (TDW): up 6%
  7. Transocean (RIG): up 4%
  8. Ulta Petroleum (UPL): down 3%
  9. Weatherford International (WFT): up 6%

For more on Real Money's 20 distressed companies to watch:

Stressed Out: Introducing Real Money's Distressed Index

Stressed Out: Why the Big Steelmakers Are Tanking Today

 

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