Energy Stocks to Buy If Oil Bottoms at $75 - Tactical Trading

In the midst of another heavy selling day in equities, crude oil showed more surprising strength on Wednesday. This after Tuesday's action when light sweet crude traded into the $75 handle and then rebounded sharply along with equities after the FOMC policy statement.

Wednesday's surge to nearly $83 per barrel and Thursday's push above $84.50 is signaling that while stocks may be pricing in the coming recession, the oil market is not. I think it is therefore a great time to look for bargains among strong energy names.

Here are seven Zacks #1 Rank stocks that I am trading this month. Note that most are mid-cap names ($2-$10 billion market cap), which is typical of the Zacks #1 Rank (strong buy) because our model screens for stocks with rapid earnings acceleration.

Each name is listed below by market capitalization (MC), with the stock's forward P/E, a brief description of the company's business focus, and current year/next year EPS growth rates.* Be sure to see the available reports for more detailed analysis.

National Oilwell Varco (NOV): $25.5B MC, 13.6 P/E; a worldwide leader in the design, manufacture and sale of machinery and equipment used in oil and gas drilling and production, with many components designed specifically for rig applications in offshore, extended reach and deep land drilling. 2011/12 EPS growth of 8.6% and 27%.

Cabot Oil & Gas (COG): $6.2B MC, 39 P/E; an independent oil and gas company engaged in the exploration, development, acquisition and exploitation of oil and gas properties located in four areas of the United States: the onshore Texas and Louisiana Gulf Coast; the Rocky Mountains; Appalachia; and the Mid-Continent or Anadarko Basin. 2011/12 EPS growth of 52% and 82%.

Precision Drilling (PDS): $3.3B MC, 12.75 P/E; an integrated oilfield drilling and energy service company that provides contract drilling, well servicing, and technologically advanced equipment for strategic support to hundreds of onshore rigs in Texas and Canada. 2011/12 EPS growth of 90% and 47.75%.

Oil States International (OIS): $3.2B MC, 11.8 P/E; a diversified global oilfield services company, a leading manufacturer of products for deepwater production facilities and subsea pipelines, a leading supplier of a broad range of services to the oil and gas industry, including production-related rental tools, work force accommodations and logistics, oil country tubular goods distribution and land drilling services. 2011/12 EPS growth of 60% and 23.6%.

Complete Production Services (CPX): $2.1B MC, 9.4 P/E; one of North America's leading oilfield service providers, offering all-inclusive field support solutions, equipment and well-production optimization and enhancement to the world's largest oil and gas companies who rely on the company's local basin expertise and leadership in the major oil and gas regions from Canada to Mexico. 2011/12 EPS growth of 163% and 36%.

Key Energy Services (KEG): $2.0B MC, 14.5 P/E; one of the largest providers of onshore oil and gas well services in the United States and Argentina, the company provides a full range of maintenance and workover services to major and independent oil and gas companies including the completion of newly drilled wells, the recompletion of existing wells and the plugging and abandonment of wells at the end of their useful lives. 2011/12 EPS growth of 845% and 77%.

Basic Energy Services (BAS): $900M MC, 10.8 P/E; provides a range of services to America's oil and gas producers with operations spanning the heartland of domestic onshore production from Texas, Oklahoma, Louisiana and New Mexico to the Rocky Mountain states. Its services support the entire life cycle of a well - from drilling to production and finally - abandonment. 2011/12 EPS growth of 273% and 45.7%.

*A key caveat here with all of these forward earnings estimates and growth projections is that they are subject to downward revisions as the probability of recession increases and/or lower oil prices are figured into valuation metrics.

Two More Potential Bargains: SU and CVI

I also want to mention two more stocks that do not currently maintain the coveted Zacks #1 Rank, but may offer opportunity to energy investors. Suncor (SU), the 47.6 billion Canadian oil-sands giant is now trading at 10 times forward estimates after falling about 25% in the past month.

If you want to exposure to the Athabasca tar-sands basin, this is probably the powerhouse name to own. Current 2011 and 2012 EPS growth estimates are at 76% and 20% respectively. Suncor has a Zacks #3 Rank (hold) at this time.

CVR Energy (CVI), a $1.8 billion refiner, with a division focused on ammonia/urea nitrate fertilizers, currently has a forward P/E of just 6.2 times. With expected EPS for 2011 to hit $3.27, this represents 900% growth.

CVI is currently a Zacks #2 Rank (buy) stock. If you like the refining business, you may also want to consider Valero (VLO) or HollyFrontier (HFC) since both names are Zacks #1 Rank stocks.

This list of energy names with strong earnings growth potential -- and in some cases, compelling value -- should give investors and traders a good starting point when considering to add to an energy portfolio during this market correction.

They may not launch higher right away, but if you believe in the long-term secular bull market in crude oil -- i.e., that a barrel will spend the majority of the this decade in triple-digits -- then finding bargains now in the energy patch is a high-probability opportunity.

Disclosure: I own, or have long positions via naked puts in NOV, SU, CVI, and BAS

Kevin Cook is a Senior Stock Strategist for Zacks.com
 
CABOT OIL & GAS (COG): Free Stock Analysis Report
 
CVR ENERGY INC (CVI): Free Stock Analysis Report
 
NATL OILWELL VR (NOV): Free Stock Analysis Report
 
SUNCOR ENERGY (SU): Free Stock Analysis Report
 
VALERO ENERGY (VLO): Free Stock Analysis Report
 
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