Devon: A "Natural"

09/09/2005 12:00 am EST


Jocelynn Drake

Financial Analyst, Schaeffer's Investment Research

"In the wake of Hurricane Katrina, the oil sector has been the center of attention in the financial world," says Jocelynn Drake. "One company that is standing in a slice of the limelight is Devon." Here's her review of the natural gas play.

"Devon Energy (DVN NYSE) has proved reserves of 596 million barrels of oil equivalent, 7.49 trillion cubic feet of natural gas, and 232 million barrels of natural gas liquids. DVN has exploration and production assets in the Gulf of Mexico, Western Canada, and in most of the major oil patches worldwide. Drilling down on the stock's technical backdrop even further, we find the stock has outperformed both the SPX and its peers in the Oil Services HOLDRS Trust on a monthly basis since November 2001.

"The equity is also consolidating into support at its ascending ten-week moving average. Furthermore, the security has scrambled higher along its ten-week and 20-week trendlines since November 2003. From a long-term perspective, DVN has benefited from the steadfast support of its ten-month and 20-month moving averages since August 2002. During that time period, the stock has suffered only one monthly close below these trendlines.

"Despite Devon's stellar technical performance, there are still lingering signs of pessimism in the stock's sentiment profile. The put/call open interest ratio has crept higher, indicating that traders have added puts at a faster pace than calls in the front three months of options. The accumulation of shorted shares is still near an annual high, and an unwinding of these positions could supply the stock with some modest covering support. Meanwhile, Wall Street is giving DVN the cold shoulder, as 18 of the 27 analysts following the oil firm rate it a ‘hold’ or worse. This bearish configuration leaves ample room for potential upgrades from this skeptical bunch."

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