EOT Trade Alert – November 11, 2011

| November 11, 2011

November 11, 2011

Trade Alert:

   Buy NFX January 2012 $50 Calls at $1.75 or better

Company Background:

Newfield Exploration Company (NFX) is an independent oil and gas company.  They acquire, explore, and develop oil and gas properties.  They have operations in the Mid-Continent, the Rocky Mountains, onshore Texas, Appalachia, and the Gulf of Mexico regions in the Unites States, as well as in Malaysia and China.

Short-Term Catalyst:

Last month, NFX disappointed investors.

The oil and gas company reported a lousy third quarter on October 19th.  Nothing seemed to be going right…

First off, drilling costs skyrocketed during the quarter.  And as a result, NFX cut their production expectations for the year by nearly 4%.

What’s more, oil prices went on a wild ride.  West Texas intermediate crude oil (WTIC) fell from more than $114 a barrel in May to less than $80 in early October.

Not surprisingly, NFX came up short of the $1.18 analysts were expecting them to earn.  And the stock plummeted to a new 52-week low of $34.42.

I see things a bit differently…

I think management is handling the company beautifully.  Instead of plowing through and overspending last quarter, they made the difficult choice of putting off the completion of 13 wells until 2012.

As a result, the company won’t produce as much oil this year.  It’s a negative in the short run.  But the key is management didn’t get the company in a financial bind by overspending.  This should serve the company well in the future.

Don’t forget, they’re still going to finish drilling those wells.  At some point next year, those wells will be producing oil.

I think NFX has been unfairly punished for good management.  This stock is grossly undervalued at its current price of $43.55.

And investors are already starting to take notice…

NFX is up more than 26% off the recent low.  And with oil prices on the verge of pushing past $100, NFX should continue racing higher over the next few months.

Let’s grab call options on this undervalued oil and gas producer to profit from surging oil prices.

Trade Details:

Underlying Stock Symbol: NFX
Current Bid-Ask Price: $1.40 – $1.55
Option “Buy Up To” Price: $1.75
Break-Even On Stock At Expiration: $51.75
Maximum Risk Per Contract: $175

Exit Strategy:

NFX is trading at $43.55 per share.  Resistance levels will be at $51 and again at $56. Remember, we want this stock to move higher.  Support levels will be at $40 and $35. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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