If you are looking to own energy stocks, my model suggests that the best plays in the sector are companies with a market capitalization above $90 billion.
The following five stocks are rated buy or strong buy by ValuEngine. The sector as a whole is 16.7% overvalued, but these stocks are trading near their fair values.
is up slightly since reporting Wednesday, but it's still trading below its fair value of $68.07. My quarterly risky level of $69.19 is slightly weaker than the Thomson/First Call median analyst price target of $72.
is down slightly since reporting Friday morning, hovering just below its fair value of $60.64. My quarterly risky level is $67.26, which is slightly weaker than the Thomson/First Call median price target of $69.
is expected to report EPS of $1.44. Its shares are trading 2.5% below its fair value of $61.47. My quarterly risky level is $66.38, which is slightly weaker than the median analyst price target of $69.50.
is expected to report EPS of $1.67 on Feb. 7. BP is trading just above its fair value of $69.99, not too far from my quarterly risky level of $75.66, which lines up with the median analyst price target of $75.
is expected to report EPS of $3.42 on Feb. 15. It's trading 1.4% over its fair value of $133.23. My quarterly risky level is $143.96, which lines up with the price target at $139.50.
All of these stocks have positive weekly chart profiles, with weekly closes above the five-week modified moving averages and rising 12x3 weekly slow stochastic readings.
With these positives, investors should buy if the stocks fall to their value levels on the table below, and reduce holdings if they rise to the risky levels.
My Metrics Explained
I evaluate the U.S. capital markets and profile all sectors, industries or specialty groups of companies. There are more than 6,000 stocks in my database.
Remember that when investing and trading in the U.S. capital markets and specific stocks, decisions should be made only after evaluating both fundamental and technical considerations. It is also equally important to manage risk/reward by having levels at which to buy on weakness and sell on strength. The way to do this is to enter limit orders to buy at a price below the market, or to sell at a price above the market.
Combining fundamentals and technicals is like trying to mix oil and water, but I believe it is necessary to do so, to the best of your ability. The levels at which to buy or sell can be used regardless of the fundamentals or technicals.
My discipline involves a three-pronged approach to measuring the risk/reward for trading or investing:
I use ValuEngine to define my fundamental ratings.
: Long-term investors should start a position now.
: Buy on weakness to a value level.
: Add to an existing position on weakness to a value level, and reduce an existing position on strength to a risky level.
: Reduce on strength to a risky level.
: Liquidate now as a source of funds.
Weekly Chart Momentum
This approach measures the technical strength of a stock.
: 12x3 weekly slow stochastic above 80 on a scale of zero to 100.
: 12x3 weekly slow stochastic rising above 20, but below 80.
: 12x3 weekly slow stochastic not rising or declining, but between 20 and 80.
: 12x3 weekly slow stochastic is declining below 80, but above 20.
: 12x3 weekly slow stochastic is below 20 on a scale of zero to 100.
Key Technical Levels
I identify these as a price at which to buy on weakness and at which to sell on strength.
Moving averages on daily charts
: The 21-day, 50-day and 200-day simple moving averages (SMAs).
Moving averages on weekly charts
: The five-week modified moving average (MMA) and the 200-week simple moving average (SMA).
Value levels and risky levels
: My model includes proprietary analytics that evaluate the past nine closes in several time horizons: weekly (W), monthly (M), quarterly (Q), semiannually (S) and annually (A).
Richard Suttmeier is president of Global Market Consultants, Ltd., chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in Lower Manhattan, and the author of
newsletter. At the time of publication, he had no positions in any of the securities mentioned in this column, but holdings can change at any time. Early in his career, Suttmeier became the first U.S. Treasury bond trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback --
to send him an email.