Southwestern Energy is in an oil/natural gas sweet spot

Posted Sep 30th 2009 4:20PM by Joseph Lazzaro
Filed under: Stocks to Buy

Southwestern Energy's (NYSE: SWN) stock has meandered since the June 5, 2009 Buy recommendation at a price of $42.38, but rare is the day you should sell an oil and natural gas play, hence I'm Reiterating the Buy rating.

And the reason is obvious enough: natural gas and oil (which, by the way, was down, but only briefly, and never out) - will represent preferred U.S. energy sources for at least the next decade.

What's more, Southwestern is a cream-of-the-crop play, due to its projected, large increases in production for the immediate years ahead, and its low-cost producer status.

That's why one can overlook what could be a double-top, technically, in SWN's stock chart, at/near $47. Institutional investors bid-up SWN massively this spring, rocketing shares to about $47 from the $25-range. Hence, the pull-back this summer looks like an extended correction, with the stock having since recovered to about $42. The First Call FY2009/FY2010 EPS estimates for SWN are $1.47 to $2.19.

Stock Analysis: Southwestern 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 SWN 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 75% of your SWN position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $17.

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

Tags: Southwestern Energy, SWN