• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

Buying the 'B Team': 4 Energy Stocks to Key on When They Cool

These names have gotten ahead of themselves, but should deliver outstanding mid-term profits.
By DANIEL DICKER Apr 25, 2016 | 12:00 PM EDT
Stocks quotes in this article: EOG, CLR, DVN, HES, PXD

The chorus has become deafening: The International Energy Agency (IEA) has predicted a full "rebalancing" of the oil market by late 2017, with OPEC joining in on that timetable Thursday. Our own Energy Information Agency (EIA) has gone even more aggressive, expecting a cross of the global supply/demand lines later this year and agreeing with the timeline I laid out in my book more than a year ago.

The markets, as always an "anticipatory" instrument, are responding by ratcheting up prices of oil stocks, in some cases to levels corresponding to when oil was trading more than $15 a barrel higher it is currently. EOG Resources (EOG) is at $80 a share, Devon Energy (DVN) at $35, Hess (HES) above $60 -- all seen in late November/early December of 2015, when oil was hovering nearer to $60 a barrel.

As happy as I could be to see (some perhaps) premature profits on many of my long-term oil positions, I'm also wary. It is totally clear to me that oil stocks are getting out over their skis too far and too soon. I do not believe the oil stocks should or will react more positively to another $5 a barrel rally.

Some analysts see it similarly, even if they were late to this "energy renaissance" "sector rollover" "short covering" party -- or whatever name you would like to put on it. Deutsche Bank, for example, has recently downgraded EOG, citing simply that at this point in the cycle, there were better values to be had.

I agree.

When the oil market was completely on the skids, making new lows under $30 and testing our resolve to continue to average into oil stocks, we did what our brains and insight told us to do: find the best quality shale players that were unimpeachable, even through a year or more of prices below $40. That's where we found EOG, Chevron (CVX) and Cimarex Energy (XEC).

We mostly ignored anything but the best, shunning those mostly solid E&Ps that had warts on their balance sheets or excess exposure to natural gas or a suspicion of a dividend cut or bond downgrade. It is precisely these names that have delivered even juicier returns in the sector rally: Devon, from a low of under $20 is now near $35, Apache (APA) has gone from near $35 to $55, Continental Resources (CLR) has moved from $20 to near $40 (!) and then there's our beloved Hess.

These are the stocks we must center on now.

Our long-term plays are in place -- or should be -- and should remain untouched. The next drift down in oil stocks in the next week or so should not be used to add again to those, but instead to add a little more on the ones that are clearly now far, far too ahead of themselves not to take another significant dip down.

So even if they are not the strongest players in the game, I'm going to key on those, many of which I've mentioned to keep an eye on and several we have already traded successfully: Pioneer Natural Resources (PXD), Continental, Devon and Hess.

A huge overhang of stockpiles still limits upside in oil. This year's million-barrel-a-day drop in U.S. onshore production will be offset by still-increasing production in the Gulf of Mexico. Iran remains the wildcard in OPEC supplies and Saudi Arabia is threatening another 1.5 million barrels a day of production (even if I believe they can't manage it). As such, I think there is little chance that oil, and oil stocks, won't take another move downward -- and a significant one.

Be ready for it and buy some "B-players." They're poised to deliver some outstanding mid-term profits.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Dicker owned positions in EOG and HES.

TAGS: Investing | U.S. Equity | Energy

More from Energy

Listen to Mr. Market, Not Mr. Powell

Jim Collins
Mar 4, 2021 1:56 PM EST

Let's look at bonds, rates and, especially, inflation for a true picture of what's going on, and where to put your money.

Jim Cramer: There's No Stopping the Electric Gold Rush

Jim Cramer
Mar 2, 2021 7:10 AM EST

You can't lip service electric vehicles anymore. Exxon's board moves indicate it knows its gasoline days are numbered.

Is Chevron Finally Ready to Make an Upside Breakout?

Bruce Kamich
Mar 1, 2021 1:44 PM EST

Let's check out some charts on the energy giant.

No Longer an 'Aristocrat,' This Dividend Stock Still Looks Pumped

Bob Ciura
Feb 25, 2021 2:30 PM EST

Suncor Energy has a bruised but energizing 3.0% yield.

As Plug Power Plummets, There Appears to Be More Risk Ahead

Bruce Kamich
Feb 25, 2021 2:03 PM EST

Let's check out the PLUG charts as traders react to the latest EPS numbers.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:53 AM EST GARY BERMAN

    Nasdaq Composite: Some Backing and Filling Is Here

    As today is the 4th day of the month, it seems lik...
  • 07:59 AM EST PAUL PRICE

    Fabulous News on United Natural Foods (UNFI)

    The major potential risk factor for , its contrac...
  • 08:50 AM EST PAUL PRICE

    Michaels: Close to a Deal?

    It appears that a deal could be announced soon. ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login