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Two Oil Stocks to Consider Following Smart Money in with 'Blood in the Streets'

August 18, 2015 12:08 PM EDT
Get Alerts CRC Hot Sheet
Price: $54.93 --0%

Rating Summary:
    10 Buy, 5 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 10 | Down: 8 | New: 10
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There is no way to sugarcoat it... if you've owned oil & gas stocks over the past few months they've made you look foolish and cost you a lot of money. However, the old saying on Wall Street goes "buy when there's blood in the Streets." While it is foolhardy to think you can call a bottom in oil & gas stocks, one method that could go a long way is to look to the portfolios of pro investors to help you discover new oil stocks. Today we present two such stocks:

California Resources (NYSE: CRC). At $3.80 per share, CRC is down 52% over the last three months and down 60% since being spun-off from Occidental Petroleum (NYSE: OXY) in late 2014. In his latest 13F, Dinakar Singh's TPG-Axon disclosed a new 2,148,671 share position in CRC.

While it is unclear Singh's thoughts on the new position, in April analysts at BTIG initiated coverage on CRC with a Buy rating and a price target of $11.50. Analyst William Frohnhoefer said, "We think OXY underspent on developing the assets, priming CRC for production growth in a commodity price recovery. We believe CRC is demonstrating both operating and balance sheet flexibility, which will carry it through current market challenges, making the stock a levered play on recovery."

In addition to Singh's latest purchase, last week President/CEO, Todd Stevens, disclosed he bought 10,000 shares on 08/11 at $4. While not a huge buy, it is always nice to see C-level management stepping up to buy the stock on the way down.

While there are plenty of signs lining up on the bullish side, there is also a bearish side to CRC. In a June report, BlueMountain Capital said the company's common stock is worthless and its bonds are worth about 23 cents on the dollar. The firm is short both the common and unsecured bonds.

Sanchez Energy (NYSE: SN). At $7.22, SN is down 36% over the last three months and down 79% from its 52-week high. Now the stock has found its way as a new play into the portfolio of venerable hedge fund manger Seth Klarman of Baupost Group. In Baupost Group's latest 13F, the firm showed a new 619,505 share position in SN. Kyle Bass' Hayman Capital also raised its stake in SN sharply - from just 59,218 shares to 1,471,083 shares in the second quarter, according to its 13F.

While it has received two downgrades of late, SN is still pretty favorably rated on Wall Street. 14 of the 19 analysts that cover the stock rate it 'Buy' or equivalent, giving it a favorable rating score of 7.4/10 at Ratings Insider. In June, KLR Group upgraded Sanchez Energy (NYSE: SN) from Accumulate to Buy and now has a $11 price target on the stock. The analyst highlighted the three-rig program in western Catarina and drilling a Lower Eagle Ford test in central Catarina.

In early August, SN reported results. The company missed EPS views while increasing 3Q/15 and ’15 production guidance ~2 Mboepd to 46-50 Mboepd and lowered ’15 capital spending ~$50 million to $550- $600 million. The company anticipates ’16 capex of $250-$300 million should hold production at least flat.

In KLR's upgrade report they offered a bear case of $6 per share, which was predicated on WTI Oil Price ($/Bbl) at $47.50 in 2015, $70 in $2016 and $82.50 in 2017 and Henry Hub Gas Prices ($/Mmbtu) of $2.60 in 2015, $3.75 in 2016 and $3.75 in 2017. Their bull case offered a price of $24 per share based on WTI Oil Price ($/Bbl) of $67.20 in 2015, $90 in 2016 and $102.50 in 2017 and Henry Hub Gas Prices ($/Mmbtu) $3.60 in 2015, $4.75 in 2016 and $4.75 in 2017.



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