2 Oil Stocks Screaming 'Sell'

RIG and NFX stocks have been two of the worst-performing SPX stocks in final six months of the year

Jun 27, 2017 at 12:22 PM
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Coming off their first annual gain in three years in 2016, oil prices have spent the first half of 2017 making a series of lower lows. Based on August-dated crude futures' current perch at $44.32 per barrel, oil is on track to close out the first half down more than 17%. Schaeffer's Senior V.P. of Research Todd Salamone has stressed oil "as having a major vulnerability since late April," and continues to advise avoiding "the energy space unless you are betting against the sector." If history is any guide, the second half of the year could be more of the same for black gold and, by extension, energy shares -- which have been some of the worst stocks to own over this time frame.

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, the PowerShares DB Oil Fund (DBO) has been one of the worst exchange-traded funds (ETF) to own in the last six months of the year, averaging a second-half loss of 7.7% over the last 10 years -- and a negative return of 3% in July alone! Drilling down, traders may want to sell their shares -- or buy put options -- on Newfield Exploration Co. (NYSE:NFX) and Transocean LTD (NYSE:RIG), which have been two of the worst second-half S&P 500 Index (SPX) performers over the past decade.

worst sp500 stocks to own in 2h

Newfield Exploration Among Worst Stocks to Own in 2H

NFX shares have been spiraling in 2017, down 31.5% year-to-date at $27.75 -- fresh off last Friday's annual low of $27.25. More losses could be ahead, too, if past is precedent. In fact, over the last 10 years, NFX has averaged a second-half loss of 6.6%, and has been positive just 40% of the time.

The underperforming oil stock is also at risk of downgrades and/or price-target cuts from a surprisingly upbeat brokerage bunch, which could create stiffer headwinds for the shares. Of the 20 analysts covering NFX, 13 maintain a "strong buy" rating, while the average 12-month price target of $46.03 stands at a whopping 65.3% premium to the equity's current perch.

RIG Stock Could Be Headed to Record Lows

Transocean stock's fall in 2017 has been fast and furious, with the shares down nearly 44% to trade at $8.30. Though RIG has bounced after matching its late-February record low of $7.67 last Wednesday, July 21, the stock's 10-day moving average is continuing to serve as a ceiling. The picture looks bleak for RIG going forward, too. In the past decade, the shares have averaged a second-half loss of 10.9%, and have turned in a positive performance only four times. 

Short sellers have been cashing in their winning chips amid RIG stock's long-term slide, with short interest down 19.3% from its mid-March peak. The security's inability to capitalize on this burst of buying power certainly speaks volumes to its underlying strength. However, this also suggests that Transocean shares could get pressured even lower, should short sellers start to bet on bigger losses for the struggling energy stock.


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