Oil Bottoms, SHEL, DVN, CRK, CPE are buys
Struthers Report V29 # 13.7
I last predicted a bottom in oil prices on May 5th because of a morning doji star reversal pattern and oversold conditions. The same thing has occured this week. It does not make much sense that oil prices have come back down to where they are but understand that oil is highly politicized, especially with the Ukraine war and a lower price helps the Fed's inflation fight. That said, interventions in markets can only have short term effects and prices are going to head back up. With all the uncertainty going into 2024, the middle east war and now a fight over oil between Guyana and Venezuela, prices of $150 next year would not surprise me.
I have found that these morning doji star reversal patterns are one of the most reliable in technical charting. The long red candle represents heavy selling and the doji candle stick next day means indecision by traders which way the market will go. The strong green candle next day confirms the new direction is up. The May reversal pattern saw two subsequent tests of the May low, but never the less, the bottom held.
This is a huge buying opportunity. The Biden's administration desperate acts to lower oil prices involved selling out the SPR and easing sanctions on Venezuela oil to help lower prices, is looking to back fire. Venezuela probably saw the easing as a signal the US needs their oil.
Following a vote, Venezuelan President Nicolas Maduro has declared the return of Essequibo, which represents some two-thirds of Guyana’s territory, to Venezuela. To further escalate, today's news was the Venezuela’s Prosecutor's Office has issued arrest warrants for a dozen opposition members, including former National Assembly head Juan Guaido and three members of staff of opposition presidential candidate Maria Corina Machado. The three are charged with conspiring against the Sunday referendum to annex Essequibo. And now the US is conducting military exercises with Guyana. Not a lot of oil here, but it is not going to help world supply.
For senior companies I like Shell and Devon that are both in my Millennium index for dividend yield. The link in the company name is to my first write up and I added some brief comments for an update.
Royal Dutch Shell - - - - NY(ADR):SHEL - - - - - Recent Price - $63.90
Entry Price - $52.50 - - - - - - - Opinion – buy
Shell reported very good Q3 results in early November
Q3 2023 Adjusted Earnings of $6.2 billion, reflecting robust operational performance and higher oil prices and refining margins. CFFO of $12.3 billion for the quarter, with a $0.4 billion working capital inflow, despite higher oil prices.
Enhanced shareholder distributions with $3.5 billion share buybacks announced, expected to be completed by Q4 2023 results announcement. Total announced distributions for 2023 ~$23 billion, with dividend per share this quarter being 32% higher than in Q3 2022.
The stock is up some from our entry price but the dividend has been increased too. Based on the current ADR stock price and dividend, the yield is 4.1%.
Devon Energy - - - - - NY:DVN - - - - - - Recent Price - $43.90
Entry Price - $53.11 - - =- - - - Opinion – buy
Devon produces about 50% oil and 50% gas. In 2024, the company plans to sustain oil production at around 315,000 barrels per day, with total volumes approximating 650,000 Boe per day. Capital requirements are expected to decline approximately 10 percent from 2023 levels to a range of $3.3 billion to $3.6 billion. This program is estimated to be funded at pricing levels below $40 per barrel.
Based on the current price and the Q3 dividend of $0.77, the yield is 7.0%. Their dividend has a variable component so if prices rise, so will the dividend. The chart shows a triple bottom around $44 and I expect the stock will bounce up from it.
Comstock - - - - - NY:CRK - - - - - - Recent Price - $8.92
Entry Price – 8.60 - - - - - - Opinion – sold at $14.34
The stock got hammered in November and we got stopped out at $11.00. We previously took part profits at $17.68 so I will show a sell price of an average of $14.34. I am suggesting to buy the stock back or buy initial positions if you do not own it.
The stock is very cheap with marketwatch.com reporting a p/e ratio of 2.2 and price to cash flow of a measly 2.24.
It is down to it's May lows, so a double bottom on the chart. Here is my 2022 writeup for reference. Also RSI is down close to 20 so the stock is very over sold.
Call options are fairly cheap and I would go way out to January 2025 and you can buy the $10 call for about $1.35. It has some decent open interest of almost 3,000 contracts.
Callon Petroleum - - - - - NY:CPE - - - - - Recent Price - $29.90
Entry Price $41.62 - - - - - - Opinion – buy, average down to $35
This stock got hammered in November too and I should have had a stop/loss and we did not get much of a chance for profits either. It is even more under valued than Comstock with a current p/e ratio of 1.52 and price to cash flow of just 1.53 according to marketwatch.com.
November 1st, Callon reported third quarter 2023 net income of $119.5 million, or $1.75 per share, and adjusted EBITDAX of $342.2 million. Adjusted income was $123.9 million, or $1.82 per share. The Company generated $266.8 million of net cash provided by operating activities in the third quarter. Total operational capital expenditures for the quarter were $251 million.
Operational Results - Third quarter total production was in line with guidance and averaged 101.7 MBoe/d (57% oil and 79% liquids). Oil production for the period was lower than expectations and averaged 58.0 MBbls/d. Oil volumes during the period were negatively impacted by weather-related power and midstream disruptions in August and September and a lower-than-expected oil mix from recent completions in the Delaware West area. Approximately half of the third quarter 2023 turned-in-lines (15 of 33) were in the Delaware West.
These oil& gas stocks are simply way out of favour and way under owned, with CPE just another example. The chart also shows a triple bottom around $30.
I plan to do a separate update on natural gas and a couple of these stocks. Nat Gas prices look to be bottoming too, but not a strong reversal pattern as of today, but there was a hammer candle stick yesterday on higher volume.
All forecasts and recommendations are based on opinion. Markets change direction with consensus beliefs, which may change at any time and without notice. The author/publisher of this publication has taken every precaution to provide the most accurate information possible. The information & data were obtained from sources believed to be reliable, but because the information & data source are beyond the author's control, no representation or guarantee is made that it is complete or accurate. The reader accepts information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Because of the ever-changing nature of information & statistics the author/publisher strongly encourages the reader to communicate directly with the company and/or with their personal investment adviser to obtain up to date information. Past results are not necessarily indicative of future results. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial adviser & is not acting as such in this publication.