Devon Energy is headed north

Posted Sep 21st 2009 4:20PM by Joseph Lazzaro
Filed under: Stocks to Buy

Patience is a virtue. My Buy rating issued on May 27, 2009 for independent oil/natural gas company Devon Energy (NYSE: DVN) at $60.89 was, from one perspective, a tad late.

But the reason for the late entry was technical: although DVN's fundamentals were and are solid, the Buy rating was delayed because DVN was struggling with both the $50 level and the 50-day moving average earlier in the spring. Concerning the $50 level, it's a psychological level that can create resistance.

Well, in the period since the May 27 recommendation, DVN has cleared and tested the $50 support level once and it held it, the chart looks good, and with more-than-adequate earnings growth in sight, outsized gains, even from the $65-70 range, are likely. DVN is slightly overbought, short-term, so Buying on a pull-back to $60-65 is preferred, if DVN retreats to that level. The First Call FY2009/FY2010 EPS estimates for DVN are $3.20 to $5.80.

I've raised the Sell/Stop Loss to $36, just under the 52-week low, from $28.

Stock Analysis: Devon Energy is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in DVN on a pull-back to $60-65; keep in mind that DVN may not retreat to that level. Under any circumstance, don't buy more than 50% of your DVN position before December 2009. Revised Sell/Stop Loss if you were to buy shares in this company: $36.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: Devon Energy, DVN