Integrated oil sector on a roll

September 23, 2016 09:00 AM
Rarely do you see an industry with a clean slate, i.e., nothing but analyst upgrades.

Rarely do you see an industry with a clean slate, i.e., nothing but analyst upgrades. But that is the case for the U.S. integrated oil industry.  This is a Zacks Industry niche with big U.S. names most retail investors look into or own already.  

In the six-company strong industry there have been 16 recent earnings-per-share (EPS) upgrades across the space and zero downgrades. If that doesn’t sound bullish, nothing should. This gave the U.S. integrated oil industry a Zacks Industry Rank of #15 out of 265, raising an astonishing 85 slots in the last week of July.

As for the much bigger 76-company strong Exploration and Production (E&P) industry in the Zacks Industry ranks, it is #7 out of 265 right now. The broader E&P industry records 184 analyst EPS upgrades in our ranking system and has just 35 downgrades. 

That speaks for itself too.

What is the point of all of this? The S&P 500 Energy Sector has been leading the EPS revisions downward for 18 months or more. That EPS pessimism is now officially over.
Deeply discounted E&P shares have already bounced from these belated upgrades as crude oil prices got up toward and past $50 a barrel again. I can’t see the future better than the analysts, but I can see their herding behavior.  

My call? All analyst upgrade information presented here is already priced in. It is too broad a trend to have been ignored.
However, those who wish to follow these stocks closely may find a valuable entry point sometime later this year.

Here are three stocks to consider: Conoco Phillips (COP), a Zacks #2 buy ranked stock; Hess Corp. (HES), a Zacks #2 buy ranked stock and Marathon Oil Corp. (MRO), another Zacks #2 buy ranked stock (see “Best in energy, below”).

About the Author

John Blank, Zacks Research