Oil could record a sluggish six-month period of sluggish prices, moving forward, particularly if the U.S. and global recoveries do not achieve projected GDP growth rates. Still, investors should view the above as a good opportunity to acquire shares in promising oil plays, which is why I'm Reiterating my Buy rating for Ultra Petroleum Corp. (NYSE: UPL), first recommended on June 4, 2009 at a price of $46.00.
Look for good things in FY2009 from UPL: production should rise 20-25%, following an equally-impressive 20% rise in FY2008.
Further, UPL has one of the lowest cost structures in the sector, and its reserve replacement and production growth are above the sector's average. The First Call FY2009/FY2010 EPS estimates for UPL are $1.77 to $2.32.
Technically, UPL's stock chart is in an uptrend, but it also features above-average volatility: therefore, don't buy UPL if you can not tolerate 10-15% price swings in a month. The Sell/Stop Loss has been raised to $28, from $22.
Stock Analysis: Ultra Petroleum is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in UPL now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your UPL position before December 2009. Revised Sell/Stop Loss if you bought shares in this company: $28.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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