Weatherford International has shown tremendous relative strength versus the sector as you can see in the chart below, it has gained +27% year to date versus -9% for $XLE.
The outperformance comes from some key news announcements;
- The departure of their CEO on 11/9/2016, the stock jumped 31% on the news.
- The hiring of Halliburton financial chief to run the company on 3/6/2017, the stock jumped 8%.
- A joint venture with Schlumberger to service the fracking industry in the U.S. and Canada. $WFT will own 30% of the joint venture and receive a one-time $535 million cash payment that will help them deleverage their balance sheet.
There has been tremendous pressure in the energy sector, any relief should send $WFT higher. This new deal with SLB and the cash infusion should relieve a lot of pressure from the balance sheet and cast doubts to the short sellers. Currently, 15% of the float is short, and the short interest ratio is 4.3 days, the recent joint venture announcement could make some short sellers cover their shorts.
Sanchez Energy ($SN) is the other energy stock that looks interesting here. On 1/12/2017 Sanchez Energy announced that it entered into a strategic 50/50 partnership with Blackstone ($BX) to acquire 318,000 gross operated acres from Anadarko Petroleum.
The news caught the Street by surprise, $SN which at the time was trading 2.4 million shares daily, traded 17 million shares the day after the announcement and 19 million the day after, the stock jumped from $8.70 to $14.00. The stock since then has given up the entire gain of the deal and sits on its 200-day moving average. Here at these levels, you have an opportunity to own the stock at the same level it was before the partnership that took the stock 60% higher 2-months ago.
$SN is also heavily shorted, 23% of the float is short.
The energy sector is due for a bounce, $XLE is down 8-days in a row.
Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at email@example.com or 646-480-7463.
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