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Drilling into the Energy Patch
05/08/2014 8:00 am EST
With the energy sector outperforming right now, and this stock outperforming its peers even more, veteran options trader Bob Lang of ExplosiveOptions.net offers a couple of plays in this red-hot sector.
Half of the battle every successful stock picker faces is being in the favored sector at the right time. One of the favored sectors right now is energy, and after the huge run-up in most of the energy names I came across, C&J Energy Services (CJES) takes the cake.
CJES has already reported earnings, so it bypasses any earnings blowup risk, and its overweight rating was reaffirmed by analysts at Barclays. The firm currently has a $35.00 price target on the stock. In addition, analysts at JPMorgan Chase & Co. upped their price target on shares of CJES from $25.50 to $35.00 in a research report issued to clients and investors on Friday. Their target price indicates a potential upside of 18.16% from the stock's previous close.
On Friday, this stock outperformed the energy sector by .37%. That's the sign of a strong stock gaining institutional favor and ready to continue on its run. Risk reward is favorable at this point, with $6.50 upside with $1.37 downside (if you use the suggested stop of $28.50).
Competitors to this stock include Schlumberger (SLB), Halliburton (HAL), Superior Energy Services (SPN), National Oilwell Varco (NOV), Baker Hughes (BHI), and Weatherford International (WFT), all of which I consider crowded trades. I am looking for the quiet out-performer within the energy patch. With proper use of sizing and stops, I think we have a workable name in a favored space that can reap us some nice profits.
As the stock is reasonably priced, I would look to own common and write later-dated calls against it.
By Bob Lang of ExplosiveOptions.net
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