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Shale oil and technology stocks in focus going forward

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watch_4 March, 2014 (Chinavestor) This March 2014 Newsletter is marking a turning point in our coverage of stocks. We are moving away from Chinese equities to US ones for a number of reasons. One of the reasons is that Chinese companies listed on American exchanges have abused trust for years and now the SEC is clamping down on them. There is a lot of uncertainty how this will play out. Nevertheless loss of investors’ trust is highly detrimental to future success of Chinese listings on foreign markets.

For the record. February made up for most of the losses suffered by US stocks in January 2014. The picture is somewhat different for Chinese counterparts though. The Dow Jones Industrial Average (INDEXDJX:.DJI) advanced 4.0% in February and is now just slightly in the red for the year. The S&P500 not only made up earlier losses but advanced to new all time record highs right before the end of February.

 

The Dow, Hang Seng, Shanghai Composite, and the China DR Index in 2014

index_2014feb

Chinese stocks continued to miss out on the rally. The Shanghai Composite Index (SHA:000001) advanced 1.1% in February, little solace for the index that is still 2.5% down for the year. The same goes for the China ADR Index, measuring the performance of NYSE and NASDAQ listed Chinese listings. The China ADR Index rose 2.5% in February but is still 3.8% down YTD. The Hang Seng Index (INDEXHANGSENG:.HSI) has had a similar performance so far in 2014. Steep decline in January and a partial recovery in February.

Another difficulty western investors have to overcome with regards to Chinese listings is extreme volatility. The chart on this page is just a quick snapshot of the most volatile Chinese stocks on two trading days, February 27 and 28, 2014. The chart to the left depicts extreme stock movements, picking up Sina Corp. (NASDAQ:SINA) with a significant decline and Baidu Inc. (NASDAQ:BIDU) with a similarly unusual advance. The next day, depicted on the chart to the right, Baidu Inc. (NASDAQ:BIDU) fell apart while Sina Corp. (NASDAQ:SINA) made a slight comeback.

mo_feb2014

This chart perfectly illustrates irrational volatility China stock investors have had to endure.

Instead, we are going to provide coverage of US equities going forward, leveraging our deep understanding of high risk / high return stocks. This is why we have started providing coverage of the following two sectors: high volume technology stocks such as Tesla Motors (NASDAQ:TSLA),Priceline.con Inc. (NASDAQ:PCLN) as well as Facebook Inc. (NASDAQ:FB), Google Inc. (NASDSQ:GOOG), Apple Inc. (NASDAQ:AAPL), Amazon.com (NASDAQ:AMZN), Groupon Inc. (NASDAQ:GRPN), Netflix (NFLX), and Starbucks (NASDAQ:SBUX).

The other sector we are going to cover is the booming shale oil industry. There are four stocks in our coverage right now: Continental Resources (NYSE:CLR), Whiting Petroleum (NYSE:WLL), Oasis Petroleum (NYSE:OAS) and Kodiak Oil & Gas (NYSE:KOG). We follow the well established overbought / oversold monitor for our purpose. This monitor, first chart on this page, provides an excellent opportunity to pick up stock trading extremes. Once we identify stocks on the move, next we look at fundamentals behind the move.

tech_20140229

The overbought / oversold monitor picked up some unusual momentum from Whiting Petroleum (NYSE:WLL) as well as from Tesla Motors (NASDAQ:TSLA). Interestingly, there were a lot of rumors and news coverage of Tesla Motors (NASDAQ:TSLA) and barely anything about hot shale oil companies like Whiting Petroleum (NYSE:WLL) or Continental Resources (NYSE:CLR). Nevertheless we identified the latest move by WLL as highly unusual and something investors have to keep an eye on.

CLR_2013Q4_revearn

First, let’s just take a look at Continental Resources (NYSE:CLR), a mid size shale oil company on our watch list. The stock closed at $118.4 on February 28 after a tumultuous trading session. CLR is not considered overbought by any stretch of imagination. The stock is the 5th on the list from the top. Investors were uncertain where the stock is going to go after reporting earnings on February 26. We created a revenue/EPS growth chart to put latest numbers into perspective. The second chart on this page displays historical revenue and earnings growth for CLR, combined with its stock price performance. Based on the chart, 2013 Q4 was somewhat of a disappointment in earnings but outlook for 2014 Q1 helped ease pressure off the stock. Given a negative effect on production of the harsh winter in the mid-west shale fields, we see some softness going forward to the first quarter of 2014. Nevertheless CLR is a solid company with great revenue and earnings growth potential for the mid term. We think the stock is a buy in a dip.

WLL_2013Q4_revearn

We conducted a similar analysis for Whiting Petroleum (NYSE:WLL). This was somewhat tricky because Non-GAAP and GAAP numbers greatly differed. The market seems to side with Non-GAPP numbers this time and gave the stock a great support right after earnings came out. Non-GAAP earnings for 2013 Q4 came out to $.88/share for WLL compared to a net loss of $.50/share GAAP earnings.

WLL_2013Q4_revearnGAAP

Reason for the difference is a one time non-cash charge that the Street overlooked. Based on the charts to the right, Whiting Petroleum (NYSE:WLL) has been delivering a constant revenue and earnings growth, except earnings for the current quarter. Outlook for March 2014 is somewhat conservative and takes the harsh winter in the mid-west into effect . The Street likes the stock and so do we. Whiting Petroleum (NYSE:WLL) is trading at a discount compared to the rest of the industry and we think it is a good buy.

TSLA_revear_2013Q4

Another stock we have been following closely is Tesla Motors (NASDAQ:TSLA). This is a highly contested stock now that valuations are out of this world. But a similar revenue / earnings growth chart combined with stock price performance is reassuring for longs. The current high stock price is mostly in-line with top and bottom line growth!

Tesla Motors (NASDAQ:TSLA) is a high risk / high return stock, something investors have to keep in mind. More upside is possible but that comes with increasing risk. Wish you successful investing, Blaze Fabry.



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