NEW YORK (TheStreet) -- Although energy may be one of the most unloved sectors in the stock market today, forward-looking investors should listen to the technical evidence on Halliburton (HAL) - Get Report before throwing out the bathwater.
In this first chart of HAL, above, I want to point out the two big declines and how the indicators behaved. The first decline from around $70 to below $40 traveled $30-plus and lasted five months. The second big decline traveled to $35 from $50, or $15 in four months. Now look at the momentum study in the bottom panel. There were much deeper, or lower, negative momentum readings on the first decline in late 2014 and early 2015 compared to the second decline.
This improved momentum reading tells us the rate of decline has slowed! How does that happen? A slower pace in a decline happens when buyers slow the descent. A better momentum reading, even when a stock makes a new low for the move down, can often foreshadow a future rally.
This longer-term view of HAL, above, shows us two things. First, it shows, again, the bullish divergence as HAL makes a lower low in price while the momentum indicator in the bottom panel makes a higher low just as it did in the first chart, above. The second thing we see in the chart is that the more recent price action in HAL is holding above the 2012 congestion area -- a logical place to anticipate support to develop.
What's our strategy? We would look to buy HAL below $35, risking a new low close for the move down. After an initial position is established, we would only add on strength as the market's price action confirmed our bullish view.
Separately, TheStreet Ratings team rates HALLIBURTON CO as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
We rate HALLIBURTON CO (HAL) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The current debt-to-equity ratio, 0.50, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, HAL has a quick ratio of 1.69, which demonstrates the ability of the company to cover short-term liquidity needs.
- HAL, with its decline in revenue, slightly underperformed the industry average of 22.5%. Since the same quarter one year prior, revenues fell by 26.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for HALLIBURTON CO is rather low; currently it is at 19.29%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.91% trails that of the industry average.
- 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. In comparison to the other companies in the Energy Equipment & Services industry and the overall market, HALLIBURTON CO's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full analysis from the report here: HAL