Despite the refusal of oil prices to recover, many energy stocks are carving out attractive bottoms. Chief among them is Halliburton (HAL). Along with every other oil stock, the Houston-based oil field service company has suffered plenty amid the oil price plunge.
Since tagging $74 just last year, HAL stock has fallen as much as 58%. With energy stocks galore having been tossed in the bargain bin, value players of all stripes have been scouring the sector for hot deals. The problem with snatching up oil companies willy-nilly is that there are likely a few bad apples in the bunch that binged on debt and aren’t likely to weather the continued storm of depressed oil prices.
Rather than wade through the myriad of balance sheets beckoning to value hunters, I prefer to take the quicker route and let the price charts be our guide. And the price chart of HAL stock is saying it wants to move higher.
To wit: A clean base has developed, setting up a clean entry point for the next advance in Halliburton’s stock price. The sideways digestion has gone on long enough to flatten out the 50-day moving average, thus healing much of damage inflicted over the summer.
With Monday’s rally, HAL stock has been ushered to the doorstep of a resistance breach. It needs only to follow through and we’ll have a full-fledged breakout on our hands. Watch for a break of $40.50 in the days ahead.
HAL Call Spreads
Options are cheap in HAL these days, making a long call spread an attractive bet. Buy the Feb $40/$44 call spread for $1.55. The max loss is limited to the initial $1.55 debit if Halliburton stock price is below $40 at expiration.
The max gain is limited to the distance between strikes minus the net debit, or $2.45, and will be captured if HAL stock can rise above $44 by expiration. By risking $1.55 to capture $2.45, the call spread offers an impressive 158% return.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
