5 oil & gas stocks with superior relative strength

Monday, Oct 22 2012 by
6
5 oil  gas stocks with superior relative strength

Using quant screening tools to assess potential stock investments in the oil & gas sector is in many respects as useful as drilling a well without looking at seismic data. The financials might tell some of the story but resource companies carry a great deal of information that’s not always easy to compare on a stock-for-stock basis. Items like asset values, resources and reserves, geography, tax, farm-outs and royalty issues add to the complexity. It’s not impossible to screen them – but it’s a complicated affair. 

That’s not to say that there is anything lost in comparing oil & gas stocks on some metrics – if only to spark some ideas about where investor money is flowing and why. Share price momentum is among the most obvious tools in the box for tracking stocks that are in and out of favour, often because it is an indicator that is influenced by positive news flow. Not only that, but paring down the sector to find shares that are outperforming the general market – an indicator known as relative strength – could also point the way to those that are likely to keep rising. 

Why relative strength works 

Stocks that are displaying relatively strong price appreciation (or depreciation in the case of shorting) are magnets for momentum investors. And when that relative strength begins to weaken, the time to move on is likely to be fast approaching. The general consensus in support of momentum claims the phenomenon can be blamed on several factors, the most prominent of which is a type of behaviour known as the “disposition effect”. This relates to how both private and institutional investors react to news about a stock; the main point being that they tend to sell too quickly on good news to lock-in profits while selling too slowly on bad news in the hope of eventually breaking even. 

In a seminal piece of research back in 1993, researchers Jegadeesh and Titman not only claimed that relative strength worked, they proved it with a strategy that was surprisingly straightforward. Their findings showed that selecting stocks based on their past 6-month returns and holding them for 6 months, realised a compounded excess return of 12.01% per year on average between 1965 and 1989. 

Another explanatory factor behind momentum is a phenomenon called ‘post earnings announcement drift’ (Bernard and Thomas,…

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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Magnolia Petroleum Plc is a holding company, which provides direction and other services to its subsidiaries. The Company's geographical segments include the United Kingdom (UK) and the United States of America (USA). It is engaged in oil and gas production and exploration in the United States. It is focused on acquiring and developing leases in the United States onshore formations. The Company has approximately 146 wells. Its projects include Bakken/Three Forks Sanish Formation in North Dakota, Woodford/Hunton oil formations in Oklahoma, and Mississippi Lime Play. The Bakken/Three Forks Sanish Interests target the Bakken formation, which comprises approximately three separate reservoirs, and the three Forks Sanish Formation. The Company holds leases in respect of approximately 67,200 gross mineral acres, giving rights to participate in the drilling of wells located in central Oklahoma. The Company holds leases covering approximately 5,500 net mineral acres in Mississippi Lime. more »

LSE Price
0.11p
Change
 
Mkt Cap (£m)
1.7
P/E (fwd)
n/a
Yield (fwd)
n/a

Amerisur Resources plc is an independent full-cycle oil and gas company. The Company's principal activity is investing in oil and gas exploration and development in South America, principally in Paraguay and Colombia. It operates through oil exploration and development segment. It operates in Colombia, Paraguay and the United Kingdom. In Colombia, it is an operator and has interest in the Platanillo block, which includes the Platanillo field, an approximately 11,341-hectare block located in the Putumayo Basin. It has interests in block Put-12, which is adjacent to Platanillo. It also has interest in Put-30, an approximately 38,514-hectare block. In addition, the Company has an interest in the CPO-5 contract, located in the Llanos basin and a working interest in the Tacacho contract, located in the Caguan-Putumayo basin. In Paraguay, it owns over 5.2 million hectares covering approximately five oil and gas permits in the Paraguayan part of the Chaco and Parana Basins. more »

LSE Price
26.25p
Change
1.9%
Mkt Cap (£m)
311.1
P/E (fwd)
17.9
Yield (fwd)
n/a

Argos Resources Ltd is a United Kingdom-based oil and gas exploration company. The Company is engaged in oil and gas exploration around the Falkland Islands. The Company's principal asset was its 100% interest in License PL001, which covered approximately 1,126 square kilometers in the North Falkland Basin. The Company has a farm-out agreement with Noble Energy Falklands Limited and Edison International S.p.A in respect of its interest in License PL001. The Company holds a royalty interest of 5% of gross revenues from all hydrocarbon discoveries developed within the License PL001. more »

LSE Price
4.5p
Change
 
Mkt Cap (£m)
9.9
P/E (fwd)
n/a
Yield (fwd)
n/a



  Is Magnolia Petroleum fundamentally strong or weak? Find out More »


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About Ben Hobson

Ben Hobson

Strategies Editor at Stockopedia. My goal is to help private investors learn and invest with confidence through the articles, ebooks and other resources we publish on site. I also occasionally bunk off to interview famous investors at expensive restaurants. I studied History at Aberystwyth University, trained as a journalist and covered business news and corporate finance before settling in as one of the first staff members at Stockopedia.  Away from Stockopedia I'm a mountain bike junkie. more »

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