While macroeconomic concerns are currently driving crude oil prices lower, many remain bullish that another surge in oil prices could emerge from left field. Ahead of that, do you know which energy stocks are in the “Green Zone?”
TradeSmith offers investors valuable tools for determining which stocks to watch. A good example is its Health Indicator feature. This comprehensive indicator provides an overall rating of a stock’s current health.
Using this metric, you can quickly find potential opportunities to explore. Broken down into three “zones” (green, yellow, and red), you’ll have a general idea about whether it’s best to be bullish, bearish, or neutral on a particular stock.
As you may have guessed, stocks in the “Green Zone” are performing well, with little indication that the trend is on the verge of shifting.
A stock in the “Yellow Zone” has corrected by more than 50% of its volatility quotient (VQ), a proprietary TradeSmith metric that helps measure a stock’s risk. When a stock in your portfolio goes from green to yellow, it may be a good time to reassess whether to maintain the position.
Stocks entering the “Red Zone” have corrected by more than their calculated volatility quotient. VQ can be useful when adding stop losses to your positions. View any move into the “Red Zone” as a warning sign to exit your position for now.
With this, let’s take a look at three energy stocks to buy, each of which is currently in the ‘Green Zone.”
Marathon Petroleum (MPC)
Marathon Petroleum (NYSE:MPC) has been in the “Green Zone” for over 6 months. The downstream (refining/marketing) and midstream (storage/transport) energy company, not to be confused with its former parent, Marathon Oil (NYSE:MRO), has gained roughly 27% during this time frame.
MPC stock made most of these gains during the summer. This was due to bullish sentiment at the time for refining stocks. Declining crack spreads have since made investors more cautious about the sector. Still, Marathon shares have held up relatively well in recent months.
This is namely due to a continued commitment to return-of-capital efforts like dividends and share repurchases. In October, MPC’s board approved the launch of an additional $5 billion stock buyback. The company also hiked its dividend by 10%, from 75 cents a share to 82.5 cents. This marks the second consecutive year of double-digit dividend growth. TradeSmith’s volatility quotient for MPC is 27.31%, which makes it a medium-risk stock.
Phillips 66 (PSX)
Phillips 66 (NYSE:PSX) has been in the “Green Zone” for over a year. Like MPC, it is a refining-focused energy stock. However, rather than just holding steady as of late, PSX has surged higher in recent weeks, thanks to the emergence of an activist investor.
Last month, Elliott Investment Management announced it had acquired a $1 billion stake in the company, and that it wants to gain representation on Phillips 66’s board. Interestingly enough, the activist hedge fund has cited its success as an activist in MPC stock four years ago as an example of how its proposed operational and strategic chances could help maximize the value of PSX stock.
Given Elliott’s strong overall track record of shareholder activism, the fund’s involvement with Phillips 66 could continue to serve as a positive catalyst for shares. TradeSmith’s volatility quotient for PSX is 28.84%, which makes it a medium-risk stock.
Diamondback Energy (FANG)
Diamondback Energy (NASDAQ:FANG) has been in the “Green Zone” for over a year. In contrast to MPC and PSX, FANG is a purely upstream energy stock. The company is an independent oil and gas exploration and production firm, with assets located mainly in the Permian Basin.
During October, Exxon Mobil’s (NYSE:XOM) announced acquisition of Pioneer Natural Resources (NYSE:PXD) led to a wave of “merger mania” about other Permian-focused energy plays, including FANG stock. Talk about Diamondback being a takeover target have simmered down, but the company could end up being a participant in this “wave,” as a possible acquirer.
Beyond takeover talk, given the stock’s tendency to make big moves in response to changing energy prices, an unexpected crude oil rebound could give this stock yet another major boost. TradeSmith’s volatility quotient for FANG is 36.81%, which makes it a high-risk stock.
The TradeSmith Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.