Are More Losses Ahead for These 3 Underperforming Energy Stocks?

Approach Resources Inc. (AREX), Linn Energy LLC (LINE), and Eclipse Resources Corp (ECR) have found a place on the short-sale restricted list

by Karee Venema

Published on Aug 19, 2015 at 2:53 PM
Updated on Jun 24, 2020 at 10:16 AM

U.S. equity markets have moved off session lows, after the prematurely released Fed minutes signaled caution toward a September rate hike. Nevertheless, this has had little impact on crude oil's sharp decline, with black gold continuing to linger near six-year lows. A number of energy-related stocks are feeling the heat from crude's sell-off, including Approach Resources Inc. (NASDAQ:AREX), Linn Energy LLC (NASDAQ:LINE), and Eclipse Resources Corp (NYSE:ECR) -- which have all found a spot on the short-sale restricted list.

AREX was down 13.8% earlier, but was last seen off 9.8% at $2.49 -- widening its year-to-date deficit to 61%. More recently, the shares have been pressured by their 10-day moving average, and hit a record low of $1.86 on Aug. 6.

Although Scotia Howard Weil -- which also chimed in on fellow oil-and-gas name Chesapeake Energy Corporation (NYSE:CHK) -- slashed its price target for Approach Resources Inc. in half last Friday, there's still plenty of room for a round of bearish brokerage notes. Four out of 15 analysts maintain a "buy" or better rating on AREX, while the average 12-month price target of $4.27 stands at a 71.5% premium to current trading levels.

LINE bottomed at an all-time low of $2.52 shortly before noon. More recently, though, the shares were down 8% at $2.65. Longer term, the security has surrendered nearly three-quarters of its value in 2015.

In the options pits, speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open two calls for each put over the past 10 sessions. What's more, this ratio ranks in the 72nd annual percentile, meaning long calls have been initiated over puts at a faster-than-usual pace. Should Linn Energy LLC continue to struggle, an unwinding of these bullish bets could translate into headwinds.

ECR also notched its lowest mark to date, bottoming at $3.43 in early trading. At last check, the stock was down 9.4% at $3.96, surrendering a perch atop its 20-day moving average. This is just more of the same, though, for a security that's down almost 89% year-over-year.

Against this backdrop, short sellers have been ramping up their exposure. In fact, short interest surged 51.4% in the last two reporting periods. Once today's restriction expires, a continued increase in these bearish bets could add to Eclipse Resources Corp's troubles.



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