So far, institutional investors (IIs) have not noticed that Hess Corp.'s (NYSE: HES) upstream operations (exploration and production) should benefit from high oil prices in the $80 per barrel range. But the argument here is that eventually they will, preferably starting in early 2010, which is why I'm reiterating my Buy rating for the company, first recommended on April 22, 2009 at a price of $50.41. Right now, IIs are fixated on the lower margins of downstream operations, which Hess and other refiners are coping with, as a result of recession-induced sluggish U.S. gasoline sales. The First Call FY2009/FY2010 EPS estimates for HES are $1.63 to $3.66.
Technically, Hess' stock has meandered for about nine months -- indicative of the aforementioned II tentativeness/uncertainty. Normally, that would be a cause for concern, but given the oil sector's long-term price outlook, Hess gets the benefit of the doubt and remains a Buy.
However, due to the unfavorable technical indicators, the Sell/Stop Loss has been raised to $47 from $32, as a guard against an unexpected deterioration in operations.
Stock Analysis: Hess Corp. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in HES now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your HES position before December 2009. Revised Sell/Stop Loss if you bought shares in this company: $47.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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Reader Comments (Page 1 of 1)
11-06-2009 @ 9:12PM
Uphundredpercent said...
I would like to add about Hess's upstream operations (exploration and production) . They have a large land holding in the Willison basin sitting on top of the Bakken oil formation, of I think around 600,000 acres. Now drillers are getting great results from under the Bakken in the Three Forks formation. This is a huge oil find and small oil explorers like Brigham (BEXP) are producing wells with a average 2,000 boed oil. Technology has arrived this year and it's like the gold rush up in Wyoming. Now the great thing is we won't have to hear the debate of getting more oil from Alaska because we don't need it.