When a stock's share price is lower than a North Dakota thermometer in February, investors tend to give it the cold shoulder. But as the market warms to a stock's prospects, its price can heat up in a hurry. Alas, you can rarely tell that a stock is melting investors' hearts until after it's made that upward leap.
Taking the market's temperature
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions of 180,000-plus members, offer a great way to monitor investor sentiment. Following a CAPS rating trend can help us determine the best time to invest. Let's look at previously low-rated companies that have recently enjoyed a bump in investor confidence to the top tiers and see whether they're truly heating up -- or headed back to the deep freeze.
(out of 5)
EPS Growth Next Year
|EXCO Resources (NYSE: XCO )
|North American Tankers (NYSE: NAT )
Source: Motley Fool CAPS.
Obviously, this is not a list of stocks to buy -- just a starting point for further research. Yet if some of the best investing minds are taking notice of these stocks, maybe we should, too.
Caution: Contents may be hot
Weak natural gas prices continue to flog drillers that are in the midst of dramatic rig reduction efforts. Chesapeake Energy (NYSE: CHK ) is scaling back the number of rigs in production, expecting its dry-gas rig count to fall 67% this year, and Ultra Petroleum reduced its 2012 capital expenditure budget to halt excess production. EXCO Resources is reducing its rig count in Haynesville from 22 last year to nine in 2012 and will go from four to three rigs in the Marcellus region. It predicts flat production numbers this year.
But apparently not everyone is on board with this. While rig counts are off 30% from their peak last October, industry services provider Baker Hughes reports that the number of gas-oriented rigs actually rose last week -- the first time in three months that's happened. Natural gas is plentiful, and with new technologies and drilling techniques permitting greater access to reserves previously unattainable, we are awash in it. Inventories continue to exceed five-year averages, and prices are at some of their lowest levels in a decade.
Importantly, the number of horizontal rigs in service remains near all-time highs. So even if totals were still reduced, those stations operating the most efficiently and effectively are still at their peak, meaning there's no end in sight for this languishing sector. Add in an exceptionally warm winter and you've got a prescription for prolonged malaise.
Shares of EXCO are down nearly 70% from their highs, and though it has used asset sales to pay down some of its debt, I don't see any catalyst here that will move this stock higher for some time. While CAPS All-Star Lordrobot sees a smart management team keeping the nat-gas specialist on an even keel, I don't see EXCO getting any help from its industry brethren. As a result, my CAPScall on EXCO is for it to underperform the market over the next year or so.
Tell me in the comments section below or on the EXCO Resources CAPS page your views on its place in the industry, and then add it to your watchlist to see whether the rising rig count continues.
A crude assessment
As plentiful as natural gas is, oil supplies are also increasing as the American Petroleum Institute reports crude inventories rose 7.8 million barrels last week against an expected increase of just 1.9 million barrels. So the storage and transportation niche of the industry would seem to have positive trends developing in its favor, but that doesn't necessarily float the boats of the tanker market.
Frontline (NYSE: FRO ) , Nordic American Tankers, and the rest of the industry are floundering amid a glut of vessels every bit as pervasive as the natural-gas rig market. Tanker rates are still depressed considering global economic turmoil, and with new ships still entering the market, there's little reason to expect anything greater than a modest increase in rates. I'd probably look at storage companies like Niska Gas Storage Partners (NYSE: NKA ) to capitalize on the situation rather than tanker stocks.
While 926 of the nearly 970 CAPS members rating Nordic believe it will beat the Street, I'm tacking in another direction and have rated it to underperform. However, I'm rating Niska to outperform due to a more promising outlook.
Add Nordic American Tankers to the Fool's free portfolio tracker to be alerted if it sinks or swims amid the industry debris.
Checking the mercury
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