Trading #1 Energy Stocks: BAS and CVI - Tactical Trading
21 Juillet 2011 - 2:00AM
Zacks
There are currently 21 Oil/Energy stocks with a Zacks #1 Rank
(strong buy) because of the earnings momentum implied by recent
upward revisions to analyst estimates. This #1 Rank is earned by
only the top 5% of stocks across 16 major market sectors of which
Oil/Energy is one.
Because upward analyst estimate revisions are the
strongest leading indicator of earnings momentum, it makes picking
top moving energy stocks easy. But what if a stock slips to a Zacks
#2 Rank (buy) because the competition between stocks with strong
upward revisions is so fierce at the top -- is the performance as
strong?
Take a look at the chart of Basic Energy
Services (BAS), an oilfield services provider, to see how the
stock has performed since becoming a #2 Rank on January 19 of this
year.
![](http://www.zacks.com/images/upload_dir/1311272124.jpg)
BAS has had a great run since then from $15 to
five-year highs above $37.50 (the all-time high from May of 2006 is
above $38). And here is the record of the Zacks Rank that would
have kept you in this 100% gainer:
Date Zacks Rank
Jan 19 - #2 Apr 26 - #1 May 26 - #2 May 27 - #1 Jun
01 - #2 Jun 09 - #1 Jul 13 - #2 Jul 14 - #1
What drove the Zacks Rank to keep BAS among the top
220 of a universe of 4,400 stocks? Two words: earnings momentum.
When I first wrote about BAS on May 27 I noted that analyst
earnings estimates for 2011 had moved up over 175% in the
previous 90 days from $0.49 to $1.35. Here was more of the
perspective I gave then...
The bearish energy forecasts by Goldman
Sachs (GS) and Exxon Mobil (XOM) in April -- following
the crude oil price spike that was driven by revolutions in
oil-rich nations -- sent most energy names into profit-taking mode
for much of May. This trend sent BAS from above $30 down below $24.
But as a #1 Rank stock, that pullback should have been considered a
buying opportunity. And the reversal by Goldman analysts on their
energy outlook brought out the BAS bulls, sending the stock up 11%
on May 25 and another 4% the next day to close above $27.
Since I wrote that in late May, you could have made
another $10 per share, or 37% on BAS in less than two months.
And here's the most recent earnings and growth data
for BAS from Zacks, where you can see 2011 estimates are now at
$1.88, representing awesome EPS growth of 265%. Even 2012 full
estimates are expecting growth over 35%.
![](http://www.zacks.com/images/upload_dir/1311272792.jpg)
Screening for Growth and Momentum
This week we ran a simple screen looking for stocks
with a Zacks #1 Rank that also had the following metrics: upward
price momentum, market beating relative price strength, and trading
in the top third of their 52-week price range.
Two energy stocks that showed up were BAS and
CVR Energy (CVI). I should note that BAS reports after the
close today, so it will be very interesting to see if the earnings
surprise potential of this company is all priced into the stock
near five-year highs.
CVR Energy, headquartered in Sugar Land, Texas, is
an independent refiner and marketer of high value transportation
fuels and, through a limited partnership, a producer of ammonia and
urea ammonia nitrate fertilizers. The stock has had a mixed
earnings picture for most of the year, but became a Zacks #1 Rank
on June 21. Here's their profit outlook as of today:
![](http://www.zacks.com/images/upload_dir/1311273100.jpg)
The good news is obviously in this company's
earnings growth for 2011. Estimates for 2011 have risen from $2.21
to $3.27 in the past 90 days, and three of the six analysts
covering the name have raised their numbers a whopping 50 cents in
the past 30 days. They also boosted 2012 expectations from $2.48 to
$2.90 in the past month.
The cautionary news might be the leveling-off in
expectations from this year to next. So I can't be sure that CVR
Energy will become a wealth builder like BAS has been this year.
But it's definitely one to keep on your watch list since it is
running a forward P/E of only 8 times and the price momentum is so
strong.
You can see the screen that found CVR Energy -- and
other powerful tools to find market-beating momentum, growth, and
value ideas -- on the Zacks Premium Screens page.
Disclosure: No positions in any issues
mentioned.
Kevin Cook is a Senior Stock Strategist for
Zacks.com
BASIC EGY SVCS (BAS): Free Stock Analysis Report
CVR ENERGY INC (CVI): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
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