NEW YORK (The Deal) -- The old investment adage "sell in May and go away" refers to the fact that stocks typically underperform between May Day and Halloween. And so it may be for some oil and gas companies.
Oil and gas stocks had a nice little run-up recently, with oil prices rising to more than $60 per barrel this week on the expectation that production will drop because of less drilling, geopolitical turmoil around the world and Saudi Arabia raising prices for its crude. But which oil stocks are weakest? Analysts are usually reluctant to issue "sell" ratings lest they find their access to management cut off, so it's not exactly easy to come up with a definitive list. But five are worth considering, whether you're in the money or not: Approach Resources (AREX), Halcon Resources (HK), Triangle Petroleum (TPLM), Transocean (RIG) and Goodrich Petroleum (GDP).
1. Approach Resources (AREX)
Fort Worth-based Approach Resources, led by Ross Craft, owns oil and gas properties primarily in West Texas but also has some in the eastern part of the state. While Approach has made the right moves in a lower-priced commodity environment, including shrinking capital expenditures, Global Hunter Securities analyst Mike Kelly continues to see stressed economics for the name at $50 to $60 oil and reiterated his $5 price target and sell rating in February. (The stock traded at $8 Thursday, close to double its 52-week low of $4.28.) Last month he put the company on his "potentially at risk" list in anticipation of its first-quarter earnings release.
Approach reported weaker earnings, with revenue down 46% compared to a year ago.
2. Halcon Resources (HK)
Halcon Resources, the Houston explorer led by the entrepreneurial Floyd Wilson, is active in the Rockies' Bakken Shale and South Texas' Eagle Ford Shale. It's currently in "hunker down mode," Kelly says, as it's overspending cash flow, adding more debt to an already over-levered balance sheet and shutting wells in the Bakken.
Bankruptcy rumors are flying. The company lost $587.4 million in the first quarter, or $1.43 per share, on half of the revenue it booked in the same period last year -- with sales coming in lower than expectations. Its stock was trading Thursday at about $1.35 per share, down more than 80% over its 52-week high of $7.50. Kelly also has Halcon on his "potentially at risk" list, a sell rating on the stock and a price target of $1.
3. Triangle Petroleum (TPLM)
Denver-based Triangle Petroleum, headed by former hedge fund investor Jon Samuels, is one of the few pure-play Bakken explorers and producers in the industry, which prompted takeover talk in better days. But it's an expensive place to explore and produce, even at $60 oil, and the company's earnings and sales have been dropping, with losses expected next year.
Triangle Petroleum has a heavy debt load. Its stock is trading around $5.40 Thursday, up from its 52-week low of $3.10 but down from its 52-week high of $12.48. On April 7, Kelly maintained his sell rating and a $2.50 price target.