Editors' Pick: Originally Published Friday, Dec. 18.
Does your portfolio need to be pared down before 2016? In that case, you might want to look to your energy sector plays.
On a list of large-cap stocks in the S&P 500 rated "sell" by TheStreet Ratings, TheStreet's proprietary ratings tool, six of the nine stocks are oil production companies. Not a great place to be investing right now, considering crude oil closed at its lowest level since 2009 on Thursday and is pressuring the energy sector (even though it's good for gas prices).
Metals and mining company Freeport-McMoRan (FCX) - Get Report also made the list as miners follow the energy patch down. Freeport-McMoRan recently suspended its dividend, among other capital conserving measures taken. Slower global economic growth is hurting commodities. Gold futures settled at their lowest level since 2009 on Thursday.
Two chemicals companies -- FMC Corp. (FMC) - Get Report and Mosaic (MOS) - Get Report -- made the list due to slower global growth.
That said, the recent Dow Chemical -- DuPont deal could mean further consolidation in the chemicals space. FMC could be a takeout target, according to Michael Sison, an analyst with Key Capital Markets, a division of KeyCorp.
TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equity market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014, beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Here's the list and when you're done check out the A-rated stocks with high total returns to buy for 2016.
Industry: Energy/Oil & Gas Exploration & Production
Year-to-date return: -31.5%
Apache Corporation, an independent energy company, explores, develops, and produces natural gas, crude oil, and natural gas liquid.
TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate APACHE CORP
as a Sell with a ratings score of D. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 325.2% when compared to the same quarter one year ago, falling from -$1,330.00 million to -$5,655.00 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, APACHE CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to $789.00 million or 58.38% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- The share price of APACHE CORP has not done very well: it is down 20.06% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- APACHE CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, APACHE CORP swung to a loss, reporting -$13.04 versus $5.95 in the prior year. This year, the market expects an improvement in earnings (-$0.56 versus -$13.04).
- You can view the full analysis from the report here: APA