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.

A Schaeffer's exclusive

6 Sectors for Summer

Access your FREE insider report before it's too late!



NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories

Research Exposes Shortcut to Stock Market Wins
A simple way to stop picking losers, and start cashing in like Wall Street's elite.
Google Postpones Android Reveal, "Now is Not the Time to Celebrate"
"Now is not the time to celebrate," Google said in a message on its website
ZNGA Zooms to 8-Year High on Billion-Dollar Deal
ZNGA is planning to buy Peak for $1.8 billion
Huge New Legal Marijuana Market Has Shortage Crisis
250 million Europeans have access to medical marijuana. There's already a shortage....