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SOURCE Zacks Investment Research, Inc.
CHICAGO, Jan. 3, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the Oil & Gas , including Chevron Corp. (NYSE:CVX-Free Report), Harvest Natural Resources Inc. (NYSE:HNR-Free Report), Abraxas Petroleum Corp. (Nasdaq:AXAS-Free Report), Dril-Quip Inc. (NYSE:DRQ-Free Report) and Halliburton Co. (NYSE:HAL-Free Report).
Industry: Oil & Gas
As far as overall results of the Oil/Energy sector is concerned, it displays an encouraging trend. While earnings fell 8.4% in the third quarter of 2013, it improved from the 11.2% drop witnessed in the previous quarter. What's more, there was a marked enhancement in revenue performance, which was up 2.8% in the September quarter as against a decline of 5.4% in the second quarter.
The sector had a mixed performance in terms of beat ratios (percentage of companies coming out with positive surprises). The earnings "beat ratio" was an impressive 62.2%, but the revenue "beat ratio" was underwhelming, at 37.8%.
For more information about earnings for this sector and others, please read our 'Earnings Trends' report.
Considering the turbulent market dynamics of the energy industry, we always advocate the relatively low-risk conglomerate business structures of the large-cap integrateds, with their fortress-like balance sheets, ample free cash flows even in a low oil price environment and growing dividends.
Our preferred name in this group remains Chevron Corp. (NYSE:CVX-Free Report). Its current oil and gas development project pipeline is among the best in the industry, boasting large, multiyear projects. Additionally, Chevron possesses one of the healthiest balance sheets among peers, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.
While all crude-focused stocks stand to benefit from rising commodity prices, companies in the exploration and production (E&P) sector are the best placed, as they will be able to extract more value for their products. In particular, we suggest exposure to small-cap, undervalued E&P players like Harvest Natural Resources Inc. (NYSE:HNR-Free Report) and Abraxas Petroleum Corp. (Nasdaq:AXAS-Free Report), which enjoy the benefits of crude oil price leverage.
One may also capitalize on this opportunity with the related business sector of energy equipment service providers. Our top pick in this space is Dril-Quip Inc. (NYSE:DRQ-Free Report). This offshore drilling equipment maker boasts of highly engineered drilling and production equipment for deepwater severe-service applications and harsh environmental conditions.
Further, we remain optimistic on the near-term prospects of Halliburton Co. (NYSE:HAL-Free Report). The oilfield services behemoth -- among the top three players in each of its product/service categories -- is enjoying strong demand for its services in international markets and expects the trend to continue in the coming quarters. The company's inexpensive valuation and a favorable DOJ verdict over its role in the Macondo oil spill lend additional support.
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