This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

4 'Bad' Energy Companies That Make for Good Trades

Stocks in this article: WFT RIG CHK NBR

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

(Energy stock trading story updated for Nabors Industries' catalysts)

NEW YORK ( TheStreet) -- There's a cynical stock market adage that explains recent trading in shares of Transocean (RIG), Weatherford International (WFT), Nabors Industries (NBR) and Chesapeake Energy (CHK): Bad companies make for good trades.

It's a bit of trading knowledge that can help investors identify stocks where even if the long-term outlook is promising, short-term management mistakes offer trading opportunities.

A stock goes down because it messed up so much, and that presents an opportunity to ride it back up. Often, though -- and this is key -- it's riding that stock back up before it goes back down again because management messes up yet again. Positive headlines are magnified, but so are the negative ones.

Take Weatherford, which a year ago announced that it might have to restate years of financial statements because it messed up its tax status. Weatherford sank so low by the time the market bottomed out last October that it's up 25% since -- though its shares are down 30% in the past year.

It's a law of the markets: 'bad' companies often make the best trades.

This week, Weatherford announced that it couldn't announce its fourth-quarter results because it still doesn't have a handle on its accounting mess a year later, and shares sold off. It takes time to untangle a mess of this magnitude with financial statements all the way back to 2008 impacted. However, it means that the best way to play the stock is by asking the question - Will the next short-term trigger be up or down?. Given that the Weatherford overhang remains one acutely tied to accounting risk, confidence requires a healthy dose of Tums and a strong stomach.

If it seems like a value play in comparison with oil service peers like Schlumberger (SLB), Halliburton (HAL) and Transocean (BHI), keep in mind that it is difficult to compute the value of a company that can't tell you what it earned in the most recent quarter, or for the past four years.

So let's focus on the other three "bad" companies.

Chesapeake, which is the poster child for the exploration and production-levered balance sheet, continues to be a very murky story long-term.

Yet it's steady stream of self-promoting press releases intended to combat both investor and sell-side criticism have made this "bad" company a great trade at any given time. Chesapeake shares are up close to 10% this year, while being down 28% in the past year.

Chesapeake's 200-day moving average is $26, and it is currently trading at the $25 mark. It is the only of these three "bad" company energy stocks that is not currently trading above its 200-day moving average.

Does that mean it is the best "bad" company positioned for a move up from current levels? Here's the cautiously bullish view...

1 of 5

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs