The Under-the-Radar Energy Stock With Huge Upside Potential

Data suggests ONEOK, Inc. (NYSE:OKE) is poised to continue rising on the charts

Jan 26, 2017 at 2:44 PM
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Each week, Schaeffer's Senior Quantitative Analyst Rocky White sends out a list of stocks that have pulled back to key moving averages. One name that jumps out at us this week is natural gas stock ONEOK, Inc. (NYSE:OKE). Not only have the shares pulled back to a level that has historically resulted in outsized gains, but other data suggests OKE has enormous upside potential for contrarian traders

Starting on the charts, the equity has nearly tripled in value since its low of $18.88 last February, most recently seen at $55.19. Just before the end of 2016, OKE notched a two-year high just below the round $60 level, and has since pulled back to its rising 80-day moving average. The last four times the stock has pulled back to this level, it has averaged a 21-day return of 9.2%, ending positive each time. Such a move this time around would have OKE atop the $60 mark. 

Daily Chart of OKE

Despite this bullish technical setup, there's almost no optimism levied toward OKE across Wall Street. In the options pits, for instance, put buying has been extremely popular. The stock has a 10-day put/call volume ratio of 12.43 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the 94th annual percentile. In other words, put buying has been much more popular than normal, relative to call buying -- albeit on low absolute volume. While some puts may have been purchased by shareholders hedging, an exodus among "vanilla" bears could create tailwinds. 

ONEOK is also heavily shorted. Going by the stock's average trading volumes, it would take roughly seven sessions for short sellers to cover their positions. Stated simply, there's plenty of room for short-covering activity to help the shares climb the charts. 

Analysts might be the most bearish of all, however. Just one of 13 brokerage firms recommend buying OKE, and the equity is trading above its average 12-month price target of $52.53. It seems analysts could be forced to re-evaluate their positions on OKE, and any bullish attention should be a boon. 

Making ONEOK, Inc. (NYSE:OKE) an even more attractive target for options traders is its Schaeffer's Volatility Index (SVI) of 25%. This reading comes in at an annual low, meaning the options market is pricing in unusually low volatility expectations for near-term strikes at the moment. Plus, OKE's Schaeffer's Volatility Scorecard (SVS) registers at 81, suggesting options traders have underestimated the stock's ability to make outsized moves over the past year. 

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