3 Red-Hot Oil Stocks Analysts Love to Hate

Oil stocks Murphy Oil Corporation (NYSE:MUR), Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR), and Southwestern Energy Company (NYSE:SWN) could benefit from analyst upgrades

by Alex Eppstein

Published on Apr 12, 2016 at 2:54 PM

Oil stocks are blazing higher today, as a potential production freeze breakthrough between a pair of major crude exporters lifts oil prices. However, a number of these oil stocks are among the most hated by analysts, making things extra interesting for contrarians like us. Below, we'll take a look at how Murphy Oil Corporation (NYSE:MUR), Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR), and Southwestern Energy Company (NYSE:SWN) have been performing amid rampant skepticism -- and what it could mean going forward.

MUR is putting on a clinic this afternoon, up 10.6% at $29.10. Year-to-date, the stock has now advanced roughly 30%, and is flirting with levels not explored since early December. What's more, MUR is set to topple its 200-day moving average for the first time since mid-2014. Nonetheless, not a single analyst out of 11 considers the oil stock worthy of anything better than a "hold" rating. Plus, short sellers have been active, accounting for 12.9% of Murphy Oil Corporation's float -- or a week's worth of pent-up buying power, at the stock's typical daily trading volumes. 

PBR has soared 9.3% to trade at $6.44, even as high-level state officials are being arrested following a corruption probe. Since tagging an all-time low of $2.71 on Jan. 20, the Brazilian oil stock has soared 137%. However, analysts remain unconvinced. Of the nine brokerage firms tracking Petroleo Brasileiro SA Petrobras, 100% have handed out a "hold" or worse recommendation. On the other hand, options traders have been buying to open calls over puts at a breakneck rate. PBR's 10-day call/put volume ratio of 4.91 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks just 2 percentage points from a 12-month peak. Echoing that, PBR call volume is running at four times the average intraday clip today, with traders betting on a surge north of $8 by May options expiration -- which encompasses the company's April 28 shareholder meeting.

Rounding out our trio, SWN has jumped 16.1% to flirt with $10.60 -- on track for its highest settlement since mid-November. More recently, the oil stock has outperformed the broader S&P 500 Index (SPX) by over 21 percentage points during the last month. On the sentiment front, however, only 10% of analysts consider Southwestern Energy Company worth buying, while over one-quarter of its float is dedicated to short interest.

As contrarians, the deep skepticism being levied toward all three stocks is worth noting, especially against a backdrop of extreme outperformance. Should this trio of oil stocks continue to chug higher, analyst upgrades and/or short-covering activity are both distinct possibilities -- potentially fueling the fire.

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