Weatherford International Plc (WFT) — Speculators who are willing to take a risk on a low-priced oil services firm should consider buying WFT stock. Weatherford is one of the largest suppliers of drilling equipment and services to the oil and natural gas industries.
WFT stock is considered high risk by S&P Capital IQ Equity Research due to its exposure to volatile energy prices, as well as problems with internal controls over financial reporting. However, the latter is in the process of being resolved, and analysts note the company has renegotiated its debt and should generate positive free cash flow this year. Capital IQ has a 12-month target of $11 on WFT stock.
After the close on March 1, Weatherford announced the public offering of 100 million shares priced at $5.65 a share, a nearly 9% discount to the day’s closing price, in an effort to reduce the company’s debt. Stock offerings almost always push share prices down, but WFT stock closed 11.5% higher on March 2, which was likely due in part to short covering.
Since hitting a high just under $24 in August 2014, WFT stock has tracked the price of crude oil lower. Shares collapsed almost 80% to a low of $4.95 on Jan. 20, their lowest level in more than a decade.
WFT stock then rallied, along with oil prices, hitting a high of $7.90 on March 4 and triggering a sell signal from my proprietary indicator, the Collins-Bollinger Reversal (CBR).
The reversal followed what appears to be a buying climax as short sellers covered their positions. The Feb. 24 NYSE short interest report showed more than 57 million shares of WFT stock were sold short, representing 7.5% of the float, with three days to cover at an average volume of 21.5 million shares per day. About twice that many shares changed hands on both March 3 and March 4, leading me to believe that shorts covered most of their positions on those days.
Tuesday’s 12.3% plunge appears to be directly related to the drop in crude oil that day and could offer traders a better entry point. Speculators should look to buy WFT stock at $5.50 for a trade to $7, which would result in a gain of more than 25%.
