Hey There Income Hunters,
Growing up I loved the feeling of looking forward to big games.
The butterflies …
The adrenaline …
My dad always told me to harness it with aggression — as opposed to letting nerves set in.
Well, I have that same feeling today as we enter the earnings period for energy stocks.
I was happy to read what Mark Sebastian’ wrote in his Monday letter about the three reasons he’s bullish on black gold
We have shared that opinion for a while … but, frankly, it has been a bit disappointing the way the producers and upstreamers have traded recently.
I believe, however, they are poised to show their true colors and let their solid earnings speak for themselves.
First up is Baker Hughes (Ticker: BKR). Expectations are not high — in fact they’re facing double-digit decline in revenues as the pandemic ravaged oilfield servicers over the past year.
The stock, too, has been hit hard. So if BKR can hang in there, the reopening and higher oil prices will provide great rewards …
I have two other names you should watch during earnings to see if you can pick up undervalued nuggets of black gold …
An Oil Name I Like (Part 1)
A favorite that I have already had success trading back and forth is Schlumberger Limited (Ticker: SLB).
I had a nice sale on SLB last week when it spiked higher, so I am looking to buy on poor earnings.
SLB trades at a deep discount to fair value as you can see below…
If earnings come out lower and the stock drops to around the $24 level, I will be jumping in.
These guys have done a great job cutting costs and widening profit margins during the pandemic. As the recovery gains steam, I see them crushing it and the stock soaring towards fair value up near $48.
An Oil Name I Like (Part 2)
I like to spread the love among undervalued candidates and gain diversification at the same time.
Here is another strong play:
Halliburton Company (Ticker: HAL).
HAL is known as the King of Shale — thanks to a majority of the company’s revenues often coming from the sedimentary rock.
Plus, they have been awarded a narrow moat rating from Morningstar for their ability to lower development cost per barrel for oil and gas operations.
Like SLB, they have been able to increase profit margins and create value for shareholders with high returns on invested capital.
HAL also reports today and if I get the opportunity to buy them near $18, I am pouncing.
Bring It Home
That’s three oilfield servicers that will kill the rest of 2021, with a potential windfall based on Mark’s call on the price of oil.
It’s go time!
You always want to have a gameplan when the energy is high. Mark likes to call them “high-conviction” trading days.
Many times, you get the herd trade early and prices get extended — that is when you want to jump in. Then prices reverse and spend the rest of the day heading the other way …
That is contrarian trading.
When you go against consensus and you sense the inflexion points where they are wrong and all have to exit at the same time … that’s when you can catch the wave and ride it to big profits.
Good luck today and as always …
Live and Trade With Passion My Friends,
Griff
