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Why Hess Stock Rocketed 33% in January

By Matthew DiLallo – Updated Apr 17, 2019 at 5:41PM

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Several factors combined to drive up the oil producer’s shares last month.

What happened

Shares of Hess (HES -0.10%) have been all over the map in the past year. The oil company's stock price zoomed more than 50% at one point last year before falling off a cliff as oil prices crashed. That volatility continued in January, though this time back to the upside as shares of the oil producer rocketed 33.3% for the month, according to data provided by S&P Global Market Intelligence. While a rebound in the crude oil market helped spark that, it wasn't the only catalyst driving Hess' stock higher last month.

So what

Oil prices bounced back in January. After plunging 40% over the final three months of 2018, crude oil rallied 18% to start 2019. The industry began burning off the excess crude that had started piling back up in storage at the end of last year as an OPEC-led coalition reduced its output level in January. That rebound in the oil market sent shares of most oil producers higher last month, including Hess.

An oil pumping unit at sunset.

Image source: Getty Images.

Lower oil prices during the final quarter of 2018 did have a notable impact on the results of oil companies like Hess. After producing a gusher of profits during the third quarter, Hess loss money in the fourth quarter of 2018. However, the company's results did come in better than expected as its production was above forecast while its adjusted loss wasn't as deep as analysts had feared. Those factors showed that the company's strategic plan is producing results.

Several analysts believed that Hess' sell-off at the end of 2018 was a bit too much, leading them to upgrade the company's stock last month. Bank of America Merrill Lynch, for example, called out Hess as one of the best values in the sector. Meanwhile, Barclays upgraded the company's stock from equal weight to overweight last month, saying that Hess had a more attractive valuation relative to its peers following its sell-off to end 2018.

Check out the latest Hess earnings call transcript.

Now what

After rocketing in January, shares of Hess aren't the screaming bargain they were at the end of 2018. However, the oil producer is in the midst of a long-term expansion that should see it grow cash flow at a 20% compound annual growth rate through 2025 even if oil prices remain low. That strategic plan has the potential to create significant value for investors in the coming years, making Hess a compelling oil stock to buy for the long term.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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