Two Interesting Oil Plays

Two Interesting Oil Plays

The energy sector (XLE) peaked back in December and its down -13% since then. However, $SN and $WFT are two energy stocks that look interesting to me right here right now.

Weatherford International has shown tremendous relative strength versus the sector as you can see in the chart below, it has gained +27% year to date versus -9% for $XLE.

The outperformance comes from some key news announcements;

  • The departure of their CEO on 11/9/2016, the stock jumped 31% on the news.
  • The hiring of Halliburton financial chief to run the company on 3/6/2017, the stock jumped 8%.
  • A joint venture with Schlumberger to service the fracking industry in the U.S. and Canada. $WFT will own 30% of the joint venture and receive a one-time $535 million cash payment that will help them deleverage their balance sheet.

There has been tremendous pressure in the energy sector, any relief should send $WFT higher. This new deal with SLB and the cash infusion should relieve a lot of pressure from the balance sheet and cast doubts to the short sellers. Currently, 15% of the float is short, and the short interest ratio is 4.3 days, the recent joint venture announcement could make some short sellers cover their shorts.

Sanchez Energy ($SN) is the other energy stock that looks interesting here.  On 1/12/2017 Sanchez Energy announced that it entered into a strategic 50/50 partnership with Blackstone ($BX) to acquire 318,000 gross operated acres from Anadarko Petroleum.

The news caught the Street by surprise, $SN which at the time was trading 2.4 million shares daily, traded 17 million shares the day after the announcement and 19 million the day after, the stock jumped from $8.70 to $14.00.  The stock since then has given up the entire gain of the deal and sits on its 200-day moving average. Here at these levels, you have an opportunity to own the stock at the same level it was before the partnership that took the stock 60% higher 2-months ago.

$SN is also heavily shorted, 23% of the float is short.

Weekly Chart.

The energy sector is due for a bounce, $XLE is down 8-days in a row.

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Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463. 

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By |2018-02-02T12:06:21+00:00|

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