A tidal wave of trading volume has given Nabors Industries Ltd. (NYSE:NBR) a significant boost in the past few days — a tidy little gift courtesy of a weakening dollar.
The decision last week by the Federal Reserve to postpone widely anticipated interest rate hikes sparked significant fluctuations in currency markets, with the Wall Street Journal noting that a bearish greenback helps entities that acquire oil in foreign currencies by reducing the cost of the commodity.
Further bolstering the case for NBR stock was the announcement by C&J Energy Services Inc. (NYSE:CJES) of a $1.4 billion, shareholder-approved merger that would entail the industrial services provider obtaining Nabors’ production and completion division.
NBR Is Getting Attention
While the March 23 equity bump for NBR stock wasn’t outrageously impressive, the volume was, registering nearly 60 million shares trading hands. Not only is this more than 450% higher than the average volume over the past three months, it’s an all-time record since Nabors’ initial public offering back in February 1991. The next single-highest volume day was on Sept. 11 of last year, during a time when crude oil benchmarks were rapidly losing valuation.
The sharp — and unprecedented — rise in sentiment confirms suspicions that institutional traders know something is up. After all, analysts from The Street gave the stock a “D+” rating, citing problematic issues such as reduced earnings, slim margins and a historically poor performance in the stock market.
But before sending Nabors Industries to the morgue, there are a few important counterarguments to consider:
First, the technical dynamics of NBR shares suggest that a rising level of support is developing. Since plunging below $10 on Jan. 15 of this year, the stock has steadily moved higher, to the tune of 33% as of the close of March 24.
In conjunction with this newfound stability is the international benchmark Brent crude oil, which within the aforementioned time frame recovered over 15% of valuation. So long as the underlying oil market remains bullish — and the Fed’s Janet Yellen implies this would be the case — the interim period before the eventual interest-rate hike should elevate NBR stock.
By plotting the percentage difference between the share price highs and lows over the past five quarters, we can see that aside from the unusual variance witnessed during the oil market collapse, NBR’s volatility remains in a fairly tight range between 25% to 50%.
What does this mean? Normal trading behavior has regained control of the market. And with the weak hands flushed out, long-term investors are undoubtedly eager to stock up on their positions and initiate a comeback.
And last, but not least, there is a statistical argument in favor of Nabors Industries:
Over the past five weeks, the average performance of NBR shares registers at 0.93%. Since its IPO, there have been 24 instances when the stock’s five-week average performance has hit a range between 0.90% and 0.999%. Of the total number, bullish moves over the next five weeks have occurred 17 times, resulting in a success rate of 70.8% and average returns of 8%.
Coincidentally, if shares were to be acquired now, the five-week period would coincide with Nabors’ earnings statement, estimated to be released between April 20 and April 24.
Bottom Line
You should note that the oil market and its accompanying producers have been taken on a wild ride, and geopolitical flashpoints can easily unsettle the recent stability that has been established in this sector.
However, both interpretive and quantitative analyses suggest that Nabors is poised for a high-probability comeback, so NBR is one speculative idea to seriously consider!
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
