Oil and gas stocks have been surging so far in 2016 thanks to a rebound in prices and a bit more hope for the market and its longer term potential. But recent events suggest that this run might be coming to an end, as sluggish economic data and an oversupplied market are starting to wreck havoc on a number of stocks in the space.
Take Helmerich & Payne, Inc. (HP) for example as a great representation of this trend. This Oklahoma-based company is focused on the drilling market has seen its shares rise by nearly 9% since the start of 2016. However, May has been a rough stretch for the company and HP stock has fallen by almost double digits just since the beginning of the calendar month.
This is obviously a bearish trend, but investors have to be asking if this can continue for HP shares, or if a rebound is dead ahead. Well, if we consider some of the bearish economic data lately — such as sluggish China growth prospects and increased worries over U.S. economic activity — and we add that to the recent earnings estimates for this stock, it becomes clear that HP may be facing more pain in the near term.
HP’s Recent Estimates Get Cut
Analysts have been racing to cut their earnings expectations for HP stock. In the past two months we haven’t seen a single estimate go higher, compared to eight lower in the current quarter and eight lower for the full year.
The magnitude of these earnings estimate cuts has also been troubling. We have seen expectations slashed by more than 50% for the current quarter and current year, while the most recent estimates have been especially bleak.
And with recent sluggish news out of both the U.S. and China, there seems to be little prospect that these fundamentals will turnaround anytime soon. No wonder HP has fallen to a Zacks Rank #5 (Strong Sell) and that we are looking for more underperformance from the stock ahead.
This Oil Stocks Provides a Better Investment Choice
There are a few better positioned companies out there though, even in this uncertain oil/gas drilling market. One to watch in particular is SeaDrill Partners LLC (SDLP). Not only does the stock have an ‘A’ VGM score, but it has just gone from a Zacks Rank #3 (Hold) to a Zacks Rank #1 (Strong Buy) in the past week, making it a compelling choice.
Plus, SDLP has seen rising earnings estimates and it looks to post year-over-year growth of 93% this quarter when compared to the year ago period. So, if you are looking to stay in the oil and gas drilling market, then definitely give SDLP a closer look and particularly over the struggling HP at this time.
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