Stock Selloff? Get Your Energy BUY List Ready!
Whew. What a roller coaster ride for stocks this week…
As you’re likely aware, the DOW, S&P 500, and Nasdaq all ended up deeply in the red yesterday. In fact, the Nasdaq had its worst day since 2011, dropping just over 3%. And with JP Morgan (JPM) missing earnings estimates by a mile this morning, it’s likely the market closes lower again today.
Much to bulls’ dismay, these losses are coming after the markets put together a hefty rally on Wednesday. The quick U-turn lower has many wondering if an even bigger correction lies ahead.
If we do get a market downturn, how low could we go?
Let’s take a look at the S&P 500…
Given the current technical situation, I find it highly likely the S&P 500 tests the 200-day moving average (red line) at the 1,760-1,780 area over the next few weeks. Such a scenario would represent a 6.6% correction from the highs set on April 4th.
But a correction of this sort is nothing to be feared…
As a matter of fact, it would present a great buying opportunity in the oil and gas exploration industry. After all, amongst all the selling in equities, oil is holding strong.
The price of WTI crude is rising over $104 a barrel this morning and is just shy of the March 1st high of $105.
And remember, the summer driving season is just around the corner. As a result, crude demand is set to jump in coming months, which will likely send oil prices even higher.
But the best part is, the looming correction in equities may give you the opportunity to add a few oil producers to your portfolio at a discount. That way you can profit from the run to higher oil prices this summer, instead of just cursing at the gas pump.
However, you have to be ready to pounce when the opportunity arises. That’s why it’s a great idea to prepare a shopping list ahead of time.
To get you started, here’s an oil and gas producer with solid upside potential…
Magnum Hunter Resources (MHR) is a Houston, Texas based oil and gas producer. The company has exposure to two of the best shale plays in the country, the Bakken and Marcellus.
What’s more, CEO Gary Evans is starting a drilling program in the up-and-coming Utica Shale of Ohio. All told, the company holds approximately 640,000 net acres in these three resource plays.
While the junior producer is still reporting quarterly losses, production and revenues are growing rapidly. In fact, oil and natural gas production is expected to jump to 35,000 boepd by the end of this year.
That’s over double the 2013 exit rate of 14,831 boepd…
And listen to this…
To fund this rapid growth rate, MHR needs capital. And that’s why CEO Gary Evans is actively pursuing $400 million worth of non-core asset sales in 2014. Much of these sales will consist of oil and gas holdings the company acquired along with their core acreage in recent years.
As long as these asset sales go through as planned, I see MHR shares trading significantly higher in the months to come. The increasing production is coming at the same time oil and natural gas prices are trending significantly higher.
Bottom line…
With energy commodities seeing increased bullishness, it’s a great idea to give your portfolio some exposure to the oil and gas industry this summer. And the potential correction in equities may give you a great opportunity to buy into energy related names at reduced levels.
Until Next Time,
Justin Bennett
*** Disclosure*** Justin Bennett is long MHR common stock and calls with no plans to sell.
Category: Commodity Trading, Energy
