Two weeks ago, oil prices were on the decline. This was driven by fears of a demand slowdown caused by the continued spread of the delta variant of Covid-19, which led to new lockdowns in countries such as Japan and New Zealand. Making matters worse was terrible economic data from China, the world’s largest crude importer.
But after the worst losing streak since 2019, oil prices bounced back last week as selling looked overdone. Helping matters were fewer COVID cases in China, which in itself creates a better demand environment. But secondly, the U.S. Dollar retreated from its recent highs, providing a foundation for commodities in general.
This rebound led to a golden cross on oil’s weekly chart. A golden cross occurs when an asset’s short-term moving average crosses above its long-term moving average. This occurred as crude oil’s 50-week moving average crossed above its 200-week moving average. The move indicates further upside, which is why investors should consider energy stocks such as Apache Corporation (APA), Continental Resources, Inc. (CLR), and EOG Resources, Inc. (EOG).
Apache Corporation (APA)
APA is an independent exploration and production company. It is engaged in exploring, developing, and producing natural gas, crude oil, and natural gas liquids. The firm’s operations are in the United States, Egypt, and the United Kingdom’s North Sea.
In the U.S., it mainly operates in the Permian Basin. As one of the largest oil producers in Permian, the company has over 2.9 million gross acres in the region, with exposure to Midland Basin, Delaware Basin, and Central Basin Platform. Its significant find is Alpine High, which is located in the southern portion of the Delaware Basin. This is expected to be an essential volume growth driver in the future.
APA is also involved in the midstream business via its publicly traded Permian subsidiary, Altus Midstream Company (ALTM). This subsidiary operates its gathering and processing assets in the region. Outside of the U.S., its operations are focused in the North Sea and Egypt, where APA is the largest oil producer and acreage holder.
Plus, the company’s discoveries in Suriname, through a joint venture with TotalEnergies, are expected to become a significant asset, providing massive cash flow potential. APA has an overall grade of Buy, which translates into a Buy rating in our POWR Ratings system. The company has a Momentum Grade of A as the stock is up 26.9% for the year and 12% over the past week.
APA also has a Quality Grade of A due to a rock-solid balance sheet. Its current and quick ratios are over 1, which means the company has more than enough liquidity to handle short-term obligations. We also provide Growth, Value, Stability, and Sentiment grades for APA, which you can find here.
APA is ranked # 5 in the Energy – Oil & Gas industry. For more top stocks in this industry, click here.
Continental Resources, Inc. (CLR)
CLR is a U.S. oil and gas producer targeting the Bakken Shale in North Dakota, and the Scoop/Stack plays in Oklahoma. In the East, the company has undeveloped leasehold acreage positions. Plus, its strategic water assets add massive value to its operations in Bakken and Oklahoma.
The firm’s position in the Bakken area bodes well. This shale play, which is one of the country’s largest onshore oil fields, produces a premium quality of crude. CLR has adopted various measures to reduce costs in the basin, with 70% of the cost savings being structural. Its operations in the SCOOP and STACK plays of Oklahoma also generate massive profits for the company.
CLR generated a free cash flow of $1.2 billion in the first half of the year and expects to generate $2.4 billion for the full year. With oil equivalent production expected to see a compound annual growth rate of 8-10%, the company’s annual free cash flow should be in the range of $3.5 to $4 billion over the five years.
The free cash flow opened the door for the company to restore its dividend that was cut during the height of the pandemic. CLR has so far increased dividend payments and resumed its stock repurchase program. The company has an overall grade of B and a Buy rating in our POWR Ratings system. CLR has a Growth Grade of B as sales soared 604.9% year over year in the second quarter.
Analysts expect sales to rise 96.3% for the year. CLR also has a Quality Grade of B due to solid fundamentals. For instance, the company’s cash position at the end of the quarter was $150 million compared with almost no short-term debt. For the rest of CLR’s grades (Value, Momentum, Stability, and Sentiment), click here.
CLR is ranked #12 in the Energy – Oil & Gas industry.
EOG Resources, Inc. (EOG)
EOG is primarily involved in exploring and producing oil and natural gas. The company’s operations are spread across the United States, China, and Trinidad. To evaluate wells in and gas plays, the firm calculates the rate of return based on the profitability of wells to produce optimum oil and gas volumes while minimizing costs.
In the U.S, EOG operates in prolific resources with massive reserves of oil and natural gas. These reserve bases are expected to boost the company’s oil and natural gas production over the next several years. The firm has significant acreages in oil shale plays such as Permian, Bakken, and Eagle Ford. EOG has roughly 11,500 net undrilled premium locations, with 6,300 in the Delaware Basin alone.
The company employs technologies like horizontal drilling and advanced completion techniques to maximize its production from these wells. In fact, EOG is one of the most technically proficient operators in the industry. Its initial production rates from its shale wells consistently exceed the industry averages.
The company recently reported strong second-quarter 2021 results due to increased commodity prices and production volumes. EOG has an overall grade of B, translating into a Buy rating in our POWR Ratings system. The company has a Momentum Grade of A as its stock is up close to 40% for the year and 5% for the week.
EOG also has a Sentiment Grade of B, which means analysts believe it has more room to run. Based on an aggregate of analyst targets, the stock has a potential upside of 50%. To gain access to all of EOG’s grades (Growth, Value, Stability, and Quality), click here.
EOG is ranked #9 in the Energy – Oil & Gas industry.
APA shares were trading at $19.71 per share on Thursday afternoon, up $0.66 (+3.46%). Year-to-date, APA has gained 39.50%, versus a 21.77% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More…
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