Leave Canada energy stocks out in the cold
The sector looks pricey and vulnerable, with no clear winners and lots of potential losers.
Before I analyze the Canadian oil-and-gas market and the stocks that trade in the U.S., I will describe the weekly chart for the S&P 500.
The weekly chart for crude oil ($94.78) will remain positive with a close this week above its five-week MMA at $94.28 with rising momentum. Oil is well above its 200-week simple moving average at $88.57. My quarterly value level is $79.66 with a monthly pivot at $92.32 and annual risky level at $115.23.
Fundamentally, the market is trading under a ValuEngine valuation warning, with 71.5% of all stocks overvalued and 32.6% of all stocks overvalued by 20% or more.
There are 558 stocks in the oils-energy sector, with only one rated "strong buy" and just 13 rated "buy." There are 137 "sell"-rated stocks and 45 "strong sell"-rated stocks. With 32.6% of all stocks in the sector rated "sell," I give oils-energy sector an "underweight" rating.
OV / UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.
VE Rating: A "1-Engine" rating is a "strong sell," a "2-Engine" rating is a "sell," a "3-Engine" rating is a "hold," a "4-Engine" rating is a "buy" and a "5-Engine" rating is a "strong buy."
Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last twelve months. Stocks with a black number increased by that percentage.
Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next twelve months. Stocks with a black number in the Table are projected to move higher by that percentage over the next twelve months.
Value Level: is the price at which to enter a GTC Limit Order to buy on weakness. The letters mean; W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual.
Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.
Risky Level: is the price at which to enter a GTC Limit Order to sell on strength.
Among the Canadian energy stocks, 12 are undervalued, but only one has a "buy" rating, and Gastar Exploration (GST) ($2.57) is speculative, trading under $3 a share. I consider a stock trading below $3 as an option on survival.
Note that seven stocks have double-digit percentage gains over the last 12 months, and that five have double-digit losses. Buy-rated Gastar is the only stock projected to be higher over the next 12 months. Only three have single-digit 12-month trailing price-to-earnings ratios, and 11 are trading below their 200-day simple moving averages.
In addition to the stocks presented today, I have a spreadsheet of 259 Canadian energy stocks that do not trade in the U.S. According to ValueEngine, only five have "buy" ratings, 111 are rated "hold," 98 are rated "sell," and 26 are rated "strong sell." The remainder are not rated by ValuEngine. That is a similar distribution for the stocks traded in the U.S.
The bottom line is that energy stocks are not cheap and there are no clear winners at the present time. Where I have value levels and risky levels, buy-and-trade strategies can be employed.
At the time of publication the author held no positions in any of the stocks mentioned.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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