It has been a very difficult time for stocks in the broader energy space as crude oil prices have collapsed in recent months. In fact, crude is testing its 52 week low, and with prices around $75/bbl., are a far cry from their 52 week high of just over $107.
Thanks to this severe slide, companies in the oil production segment have been hit hard with many testing 52-week lows of their own in recent sessions. While these trends have been very much front-and-center for energy companies here in the U.S., we often forget that international oil stocks are also impacted by these trends and have been under pressure as well.
These foreign oil giants can also be impacted by a stronger dollar too, potentially acting as another catalyst for weakness, while geopolitics can also play a role in foreign oil companies’ losses. And while we tend to think that only companies in Eastern Europe and the Middle East are impacted by these factors, it can also strike Latin America and hit companies there.
A great example of this trend is undoubtedly Ecopetrol (EC – Snapshot Report), a Colombian oil giant which has seen severe weakness in recent trading sessions. After all, the Colombian peso is at its lowest level since July 2009 against the dollar, including a nearly double digit loss in the past three months, while we have recently seen community protests and rebel attacks for the first time in more than a decade, adding to the risks in Colombia.
Both of these factors have dulled the appeal of EC and Colombian stocks in general, and given that it doesn’t appear as if a strong dollar is going away any time soon, the pressure could remain on this emerging market and its big oil company.
It also doesn’t help that earnings estimates have been on the decline as of late, signaling that analysts do not like the company’s near term prospects. For the current year, we have seen one estimate move higher in the past 30 days, but two go lower, and the same trend for the next year time frame too.
This has also pushed our consensus estimate sharply lower, with the current year estimate falling from $3.24/share 60 days ago to just $2.92/share today. Meanwhile, the next year earnings estimate has slumped from $3.60/share to $3.08/share in the same time frame, once again signaling the bearish prospects for the company.
In fact, EC is now projected to see an earnings contraction this year of over 8%, and growth next year of just under 5.5%. EC also has a pretty terrible track record when it comes to earnings season, as it has seen misses in three of the last four reports, producing an average negative surprise in the double digit percentages.
Given these factors and the general bearish trend in the oil market, it shouldn’t be too surprising to note that EC has a Zacks Rank #5 (Strong Sell) and that we are looking for the downtrend to continue. The stock also finds itself in pretty poor company, as its oil integrated industry is currently ranked in the bottom 5%, meaning there are tons of better choices out there right now.
If you are looking to stay in the energy space, one possible choice to consider over EC right now is the world of MLPs. These are usually less sensitive to oil prices, and they are also better ranked right now as well.
One to consider in particular is Alon USA Partners (ALDW), a strong buy stock that not only has a double digit yield, but solid earnings growth prospects as well. This Zacks #1 Ranked stock, which is in the oil refining and marketing space, a segment with a top 23% rank, could be a better energy selection right now, and especially when compared to the struggling EC which still has plenty of headwinds it needs to overcome before it can back to ‘buy’ territory.
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