The Zacks Analyst Blog Highlights: National Oilwell Varco, Cabot Oil & Gas, Precision Drilling, Oil States International and Complete Production Services

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Aug 30, 2011, 09:30 ET

CHICAGO, Aug. 30, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: National Oilwell Varco (NYSE: NOV), Cabot Oil & Gas (NYSE: COG), Precision Drilling (NYSE: PDS), Oil States International (NYSE: OIS) and Complete Production Services (NYSE: CPX).

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Here are highlights from Monday's Analyst Blog:

Trading Oil Via Strong Energy Stocks

Crude oil is a primary barometer of risk appetite and as such it can confirm or deny the US economy's potential to slip into recession. In the 2008-09 recession and corresponding market meltdown, oil touched $35, as ridiculously cheap a price as some fantastic companies were trading for.

During the heightened volatility of the first week of August, when the S&P 500 touched 1,100, WTI hit $75 and quickly rebounded back above $80. If you believe that the chance of a mild recession has been priced-in to equities, you may equally consider that crude oil is also signaling the economy is still in good shape.

And for broader perspective, consider that energy in general is in a long-term secular bull market, as "peak oil" may not be priced-in. In other words, it's quite possible that the average price of oil over the next decade will be well over $100.

Granted this is driven both by population growth in Emerging Markets and a weaker dollar, in addition to supply forecasts. And economic cycles will still impact the price regardless of long-term demand drivers. But the story remains a big picture trend without many meaningful alternatives.

Trading #1 Energy Stocks

In the second week of August, I mentioned this story as the fundamental backdrop for picking strong energy stocks while they were on sale. In "Energy Stocks to Buy if Oil Bottoms at $75" I highlighted seven names that all carried the Zacks #1 Rank (strong buy) for their earnings momentum.

It's a good time to revisit that list and see which stocks have done well and which ones are struggling. All but one have kept the coveted Zacks #1 Rank. And it's worth noting that more than half of the names are oilfield service companies, providing the "guns and bullets," as I like to call it, to E&P companies and refiners in the oil wars.

National Oilwell Varco (NYSE: NOV): This big dog of the oilfield services patch hit $60 on August 8 and rallied a week later with the market above $71. The retest of the lows was encouraging as the stock did not make new lows August 23. It now sits above $65 during Monday's rally and seems to be tracking the broad market well.

Cabot Oil & Gas (NYSE: COG): Cabot swung from $58 to $74 rebounding off of the first leg down, and has shown some remarkable strength on the next pullback as it held above $65 and as of lunch time today is pushing above $72.50.

Precision Drilling (NYSE: PDS): This one did make new lows below $11 on the second leg down, but is trading now above $13. The last run up was capped by its 50-day moving average around $14.50.

Oil States International (NYSE: OIS): Same story here as PDS... new lows during the week of August 22 near $57, but today back above $63. The 200-day moving average just above $71 was resistance on the rally the week of the 15th.

Complete Production Services (NYSE: CPX): Another one that made new lows in the $24 handle, today trading above $28 and targeting its 200-day moving average just above $30, which it was able to close above on August 15.

Stick with the Long-Term Energy Trend

My view of playing these energy stocks is to buy the strong ones on dips. It helps to have a view of the economy that tells you where you are wrong and a recession looks inevitable, or if stocks are at least due for another fear-driven discounting. Meanwhile, the price of WTI crude can tell you a lot too. I'm watching the $80 level as make or break for a recession.

Besides focusing on smaller companies like these with earnings momentum, you also expose yourself to buy-out potential. With energy assets in ever increasing demand, both American and Chinese mega-cap companies will likely continue to gobble up smaller players.

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