The crude oil crash has plagued the energy sector and oil stocks for months on end. This summer’s swoon was particularly relentless, with oil plumbing the depths seemingly every day.
Those wondering if black gold will ever bottom better be paying attention because oil has made some serious strides in recent weeks. The price action has been very constructive, marking a decisive change in character for the weakened commodity.
Speculation of an oil bottom is on the rise, and I suspect it’s worth looking for a trade or two in the old energy patch. The Energy SPDR (XLE) has responded to the oil bounce with vigor and is now sporting a higher pivot low, suggesting demand for oil stocks is finally on the rise.
While we remain in the early innings of the long-awaited recovery for beaten-down energy stocks, opportunities are beginning to materialize.
Here are three oil stocks to buy.
3 Oil Stocks to Buy: EOG Resources (EOG)
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One of the best-looking names among big-cap energy stocks is EOG Resources (EOG). Its bottoming process is the most developed of the bunch making it one of the first oil stocks to reclaim the higher ground.
With yesterday’s oil pop, EOG stock was able to vault back above the pivotal 50-day moving average — a level it hasn’t seen since April. The sideways base formed prior to this week’s breakout illustrates the bears’ impotence. Despite multiple attempts to take EOG stock lower in recent weeks, each and every selling raid was rebuffed rapidly by buyers.
While the bottoming attempt in EOG may yet experience a few setbacks, now is as good a time as any to dip your toes in the water.
Buy the Jan $80 calls for $6.30.
3 Oil Stocks to Buy: Exxon Mobil (XOM)
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The big dog in the energy space has also seen some promising developments in recent weeks. Though its bottoming attempts aren’t as far along as EOG, additional strength from oil should continue lifting Exxon Mobil (XOM) out of the abyss.
XOM stock is sitting on a major support level. The $68 zone is the same level that halted the 2011 crash and created a stellar buying opportunity. Exxon went on to rally north of $100 over the next few years.
If support holds true again, this is quite the attractive spot to initiate bullish plays.
In the short run, XOM finds itself consolidating in a sideways range. Bases like this provide clean breakout setups. A breach of the $75.50 will get the party started for Exxon stock.
Buy the Jan $72.50 call for $4.75.
3 Oil Stocks to Buy: Schlumberger (SLB)
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Schlumberger (SLB) rounds out our trio of energy candidates. Similar to its peers, demand for SLB stock has been on the rise. This week’s higher pivot low has aided in improving the price structure.
All that remains for SLB to complete its mini-bottoming pattern is a breakout over $77.50.
More conservative traders looking for more confirmation that SLB is indeed bottoming could wait for the breach of resistance before pulling the trigger.
Buy the Jan $75 calls for $5.40.
To stack the odds in our favor, all three long call suggestions consisted of buying January options. By going out four months, we give ourselves ample time for the oil recovery to take root and bloom.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
