The market is firming up, recouping its August lows. Today’s recommendation is a momentum stock for growth investors who want to take advantage of the market’s new trend.
Energen Corp. (EGN)
from Cabot Top Ten Trader
Energen is a mid-sized ($1.7 billion of annual revenue) energy explorer that’s re-focusing its efforts on its oil and liquids producing properties, and that’s likely to make a big difference. The firm does have some operations in the San Juan Basin in New Mexico and Colorado, but drilling there is being cut back due to lower natural gas prices. Instead, the real action is in the Permian Basin, which is far more liquids-rich; Energen boosted production in that area by 26% in the second quarter alone, and expects oil and liquids output to grow 24% this year as a whole. And, like many explorers featured in Top Ten of late, this company is only scratching the surface of its potential—it’s still trying to de-risk some of its acreage in the Permian, but if all goes well, it could have north of 5,000 more wells to tap, which represents years’ worth of activity. And that doesn’t include the still-huge San Juan Basin!
Moreover, management operates the company very conservatively; 70% of its 2013 production is already hedged, and a good portion of 2014, too, guaranteeing great cash flow. (Energen pays a modest dividend that yields 0.9%.) We can’t say this is the fastest-growing energy story, but if its exploration activities come in better than expected, the stock could do very well. As it stands now, analysts see earnings up 24% next year, but we’d guess growth will come in even faster.
Technical Analysis
Like many energy stocks, EGN peaked in the spring of 2011 and is just now back to that high. The stock was 65 at that peak, and as of April of this year, was still stuck in the mud at 45. But since then, the buyers have been in control—the stock spiked into mid-May, then built a calm base through most of July. But after its quarterly report (and its update on its exploratory drilling activities), the stock catapulted from 57 to 66 in just two days on enormous volume! It’s since chopped slightly higher; we think the stock wants to head higher if the market gets going. You can buy some in this range with a stop near 62.
Suggested Buy Range: 67-70 (Cabot’s buy range is valid for two weeks.)
Suggested Stop-Loss: 62-63
Michael Cintolo, Cabot Top Ten Trader, www.cabot.net, 978-745-5532, September 9, 2013