Southwestern Energy (SWN)
By Michael Cintolo, Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Report
From Cabot Wealth Advisory, 1/7/10. Sign up for free Cabot Wealth Advisory e-newsletter
My stock idea for today stems from a review of most of my 2009 trades. Basically, when you get these three attributes, you're usually looking at a "blast-off" of sorts, and the stock is a buy on any pullback.
The stock needs to meet these three criteria:
1. An institutional quality stock that trades hundreds of thousands, if not millions, of shares per day that,
2. The stock moves up to or close to new highs, preferably after a multi-week basing period, and
3. The stock marches higher at least seven or eight days in a row.
It doesn't always work out, but my experience tells me 70% or 80% of the time, these simple criteria can help you find at least good short-term trades, if not great longer-term entry points.
One stock that recently showed this type of strength is the bellwether of the natural gas sector: Southwestern Energy (SWN). The stock had been etching a base for eight weeks before it bolted up from its bottom for nine days in a row. And this week, it nosed out to new all-time (all-time!) high ground before easing back...particularly impressive for a commodity stock.
The company is expected to grow earnings 59% in 2010, thanks to a 36% hike in production and improved pricing for its natural gas. Southwestern's current leader is the Fayetteville Shale formation in Arkansas, which continues to churn out great wells. In fact, that shale formation is really the ruling reason to own SWN...that and the fact that top management that has expanded the firm's business nearly without fail during the last decade.
With natural gas prices firming up (a breakout above $6 for natural gas would likely forecast higher prices), I think SWN will be a winner in the months ahead. It looks buyable here, though a drop back below 45 would tell you something is amiss.
Editor's Note: If you want to learn more rules for growth investors and get the top growth stock picks in the market, you should check out Cabot Market Letter, which is edited by Michael Cintolo. The Letter is top-ranked for both one-year and long-term market timing because it follows a finely tuned system that has been perfected during the last 39 years. Click here to find out more.
Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Weekly
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Weekly. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.
From Cabot Wealth Advisory 4/7/08 Sign up for free Cabot wealth Advisory e-newsletter
Now, thinking about the world and the future, it's clear some of the biggest changes today are occurring in the energy business. Oil and gas prices are high, and companies in the industry expect them to stay high. Companies that explore on land are investing heavily in new properties, and companies that explore in the oceans are contracting for drilling time years into the future.
Yet pollution, derived mainly from burning fossil fuels, is a growing problem! In the short-term, it poses serious challenges for both the organizers of the Summer Olympic Games and the athletes who will participate in them. But in the long run, it appears to be a far more serious problem because of the greenhouse effect, which has given us global warming.
At the same time, there's explosive growth in the solar power industry, where companies—admittedly small—continue to grow revenues and earnings at triple-digit rates.
To me, it's absolutely fascinating to see the stocks in both the oil and gas and the solar power industries leading the market higher in recent days. And it's especially intriguing when you consider that the oil and gas industry (by my rough measurement of the stocks' market capitalizations) outweighs the solar power industry by perhaps 76-to-1.
So where to invest? Wherever the growth prospects are best, and wherever the stocks are going up, and wherever investor perception can improve.
The big attraction to solar power stocks is that the companies are small, so they can still grow fast...and that money coming out of oil and gas stocks can pump up solar stocks fast. The big disadvantage is that the stocks, following last year's market-leading performance, are still expensive by many measures.
The big advantage to many oil and gas explorers is that their stocks appear reasonably priced (even cheap) based on expected earnings. The big disadvantage is that someday it appears those solar power companies (and other alternative energy technologies) will begin to fulfill a significant portion of the energy market's needs. But that day is still far enough away that investors in oil and gas companies are unconcerned. Thus I'm unconcerned...I don't argue with the market.
So, reasoning that there's still plenty of room left for oil and gas stocks to run, here's a well-known company that was recommended a few weeks ago in Cabot Market Letter.
It's called Southwestern Energy (SWN). Here's what editor Michael Cintolo wrote.
"As the name implies, Southwestern explores for and produces oil and gas in Arkansas, Oklahoma, Texas and New Mexico. The company is reaping the benefits of discovering the potential of the Fayetteville Shale natural gas reservoir in 2002; it now owns about 50% of the acreage in that region. The company estimates that its production from the Fayetteville Shale will rise from 325 billion cubic feet per day to 450 billion cubic feet by year-end 2008. The stock has been working its way higher and just stepped out to new all-time highs."
What I particularly like about the company is the fact that both revenues and earnings display accelerating growth trends, which means analysts tend to have a hard time revising their estimates fast enough to keep pace. As a result, earnings reports tend to "surprise" investors, in a positive way, and the stock tends to climb higher as a result.
Since SWN's appearance in Cabot Market Letter, the stock has climbed from 32 to 38, and that looks a little high short-term. But any pullback of a few points would be opportunity enough to get on board.
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|Southwestern Energy (SWN)
2350 N Sam Houston Parkway East
Houston, Texas 77032
|Index Membership: S&P 500, S&P 1500 Super Comp |
Sector: Basic Materials
Industry: Independent Oil & Gas
Full Time Employees: 1,367
4/7/08 Southwestern Energy (SWN): Plenty of Room to Run