Many investors wouldn’t know it, but this earnings season has actually been pretty good. We’ve heard from big tech, financials and a number of industrials so far. There are still plenty of names left to report though — energy stocks included. While the market is trying to end the month on a high note, it has been a tough run as of late.
After all, the S&P 500 neared its low point for the year on Monday. It has got a lot of investors cautious as we tip-toe through the remainder of what’s left on the earnings calendar.
So how should you approach these reports? Let’s take a closer look at a few energy stocks as we near earnings.
Exxon Mobil (XOM)
Dividend Yield: 4.1%
All three companies will report earnings before the open on Friday, with Exxon Mobil (NYSE:XOM) and its $333 billion market cap being the largest of them all. By and large, energy stocks have been hammered. While bulls never like to see their stocks go through big declines, it’s actually not a bad thing into events like this.
How do we play XOM given its terrible October — down over 10% from the highs — but recent bounce off the $76s lows? A decline into those lows wouldn’t be a bad thing, either pre- or post-earnings.
Meaning that, should XOM decline into the $76s ahead of earnings or do so after and this level holds as support, it presents a solid risk/reward for investors. XOM typically does not have a great reaction to earnings, but maybe it will after such a drubbing over the past few weeks.
If it does rally, look to see how it handles the 200-day and the $80 level. Above that, and we have the 20-day and 50-day moving averages hovering near $82. This could be a level of resistance, at least right after the print. Above all three marks and the $87’s are back on deck.
For long-term investors, consider that XOM pays out a 4.1% yield and trades at about 16 times this year’s earnings estimate $4.64 per share. Should it hit that mark, Exxon will enjoy 29% growth from 2017. For 2019, analysts expect another strong year with 27% growth. Given the yield, valuation and pullback, long-term investors have something to be excited about right here.
Dividend Yield: 4%
Chevron (NYSE:CVX) has a similar story to XOM, with shares getting hammered this month as well. Over the past year, this $108 level has tended to mark a bottom for CVX — something investors should keep in mind on Friday. With shares trading near $111, this would mark a pretty good risk/reward in most investors’ eyes.
Specifically — and like XOM — I would love for CVX to dip down to this level ahead of the print. Or if we have to, it could decline to this mark after the report and see if it holds as support. Either way, the point holds the same — that being near $108 or so CVX is pretty attractive.
What if that level fails? Look to the February low of $105. If we lose that level, we need to be out of CVX. On the upside, a run back to the $117 to $120 level seems reasonable, and likely where we find some resistance, given the cluster of moving averages there.
Keep in mind that CVX trades at 18 times this year’s earnings, the latter of which is expected to more than double from 2017 to $8 per share and is forecast to grow another 21% in 2019. Shares also yield 4%, so I’m certainly not a seller of CVX at this point.
Duke Energy (DUK)
Dividend Yield: 4.5%
Duke Energy (NYSE:DUK) is another big payer, yielding 4.5%, that reports Friday morning. Although much smaller than the behemoths above, this name has been trading pretty well. If not for earnings being on deck, it could set up as a great trade given the charts.
So what do the charts say? DUK has actually been quite strong, rallying about 6.3% this month. Maybe this trade is a bit too tight with the range, but I’d love for a breakout (and possible retest of resistance after the breakout) of this downtrend resistance line near $85. Meaning a rally above and pullback to this mark that holds as support. On the downside, I want to see the 20-day and 50-day moving average hold as support.
Over $85 and we could see new highs over $88. A break below the 20-day and 50-day area could send us down to $78. This would represent a great risk/reward buy, with the 200-day just below at $77.50.
DUK trades at about 21 times this year’s earnings estimates, more expensive than both XOM and CVX. On the downside though, growth is much lower, with expectations calling for earnings to grow just 3.3% this year and 5.3% next year.
If I had to choose, I’d rather have these names pull back into the recent lows, see these lows hold as support and nibble at a long position down there.