Time to Be More Selective

 | Aug 04, 2014 | 11:30 AM EDT
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U.S. exploration and production has been the theme onto which we've hitched our star, riding for fantastic profits in 2013 and the first quarter of 2014. But with a mixed bag of hits and misses on earnings and a pathetic performance of exploration and production in the aftermath of earnings and the correction, we've now got to center on particular names and find targets for buying back into the space. The shotgun approach to exploration and production won't work anymore. Let's do a quick overview and get to some of those names.

Oil has shown unfathomable weakness, despite geopolitical risks that have been as bad as I have ever seen. I talked in detail about this weakness, why it is counterintuitive and when it might end in other columns, but we still need to believe that oil is relatively underpriced and will rally sharply again by year-end.

That being the case, there are going to be strong opportunities to be captured again in U.S. exploration and production, but the weakness in equity indices will remain at least through Labor Day.

So let's do it, let's go through some names, some of which require very careful price-point picking.

Anadarko Petroleum (APC): A tremendous earnings result and a potential Tronox (TROX) de-risking event are the major plusses for this one, although problems in Colorado fracking regulations and a missed result in the Gulf of Mexico are the downside. Still, this remains perhaps my favorite in the space. I would love to see something just above $100 a share to buy, but we might not get it. I still believe in my $130 target.

Noble Energy (NBL): A miss on earnings, mostly due to an infrastructure shortfall in the Wattenberg, but this is a problem that will necessarily work itself out. That bothers me less than the Colorado 2,500-foot setback fracking legislation coming to a vote in November, the end of Chuck Davidson's tenure and the Israel/Gaza conflict slowing production at Leviathan. This one needed a down move to buy again, and we're getting it. Anything under $65, I will jump on, and you'll likely see it.

Halcon Resources (HK): Despite in-line Tuscaloosa Marine Shale results, the report wasn't inspiring and caught a downgrade at Morgan Stanley, sending shares reeling. I've made too much money trading this one to jump back in so soon. I'd like to see something well under $5 to interest me again, and I'll definitely get it.

BP (BP): The sanction war on Russia is just beginning, as Europe is showing some surprising spine. But that's bad news for BP, whose holdings in Rosneft are significant enough to spoil its party. As a bond offering, I love BP stock. Just get it closer to $45, and you'll be OK. This goes for ExxonMobil (XOM) as well to a lesser but still significant degree, involved as the company is in the Russian Arctic and with a huge Russian liquefied natural gas project.

Cimarex Energy (XEC): Still my favorite Permian play, but please, can we get a reasonable drop in price so that it can be reasonably bought? For all of you who held this beauty to $150 while I was watching, having taken profits at $134, I salute you. But I have a rule not to buy anything back until it at least comes back to where I sold it. In this case, I don't think I'll see that, but if the market will give me a sub-$130 price, I'll be on it like white on rice.

Any favorites of yours that I've missed? Let me know at dan.dicker@thestreet.com, and I'll try to get to them in a future column.

Bottom line: This correction is not done yet, folks -- have patience here.



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