8 Little Names Finding Big Oil

09/30/2011 8:30 am EST


Peter Way

Founder and CIO, Peter Way Associates

When big money is being spent on a point of view, such as oil exploration, the notions involved are usually worth considering, says Peter Way of Block Traders’ Oil and Gold Monitor.

Current technology advances are making “finding” opportunities, particularly of domestic natural-gas reserves, much more likely than has been the case in the past.

That reinforces the attraction of the E&P companies, for both the investor and the major integrated energy provider who has downstream customer supply commitments to be satisfied. Not to mention the attraction to the investment-bank M&A crowd.

EV Energy Partners LP (EVEP) retains strong upside, with a sell target +14% higher. That’s a bit above its average profit experience, but well below extreme gains it has experienced. Its past-year consistent growth earned a reward-risk ranking better than 97% of our overall population.

Drawdowns have been minimal, mostly -4% or less. The pros’ past identifications have been quite timely, with 83% of the next 3 months’ trading days closing at prices higher than the day of forecast.

Pioneer Natural Resources (PXD) is another high-ranking buy candidate, besting 95% of the over 2,000 alternatives in our overall population on our reward-risk tradeoff scale.

As a more volatile performer, the odds-weighted return prospects are well above our +5% combined return investment minimum. Even so, drawdowns have been in single digits on average, and only -11% on a worst-case basis.

Brigham Exploration (BEXP) also meets our risk-balanced return hurdle with sufficient history to justify a buy recommendation.

Its odds for profit and past payoffs averaging +16% support a current upside sell target of +14%. Its record is better currently than 85% of our overall stock population.

Linn Energy LLC (LINE) boasts over 100 similar forecast days at least as attractive as the present, in which drawdowns averaged only -2%, and did not exceed -4% at most.

Its upside sell target is only +7% above current market, but as a low-risk candidate it outdoes 95% of all alternatives.

Concho Resources (CXO) is another strong recovery candidate. Its upside +13% sell target is well within reasonable reach.

Past experience of -7 to -9% drawdowns has been rewarded by double-digit profits following forecasts like that of the present. In the past year or so, it has contributed gains at a 56% annual rate on 23 buy recommendations.

Energy XXI [Bermuda] (EXXI) also looks good to the market-making crowd. Its upside +20% sell target is a bit of a reach, but within prior extremes.

Past drawdowns of but -8% and gains in almost three-quarters of the next three months’ days following such forecasts rank EXXI better than 91% of any alternatives on our risk-reward scale.

Exco Resources (XCO) has an ample history of producing stock price gains, averaging +16% in the three months following market-maker forecasts like the present, sometimes as large as +24%. Drawdowns can be as large as -11% in the process, but are recognized in the forecast.

Still, closing prices tend to be above cost more than five-eighths of the days on the way to the sell target.

Southwestern Energy (SWN) has a long history of being identified by market pros at timely buy opportunities.

Prior marks have averaged 14% end-of-day gains in the following 3 months after over 150 forecasts like the present. Drawdowns of -6% were typical.

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