Trade of the Day
Long
Matador Resources Co (MTDR)
Wednesday, June 4, 2014
The Trade:
Despite stumbling out of the gate in January to start the year, Oil & Gas Exploration & Production stocks have had a great half year. Since February, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has been in a healthy up-trend, while many constituents in the sub-industry have really been taking off FANG CRZO, XEC). This afternoon, Matador Resources Co (MTDR) offers a nice opportunity to buy an explosive stock in a thriving sub-industry at a relatively good entry point.
MTDR isn't quite the rocket ship up-trend that the above-mentioned stocks are. However, if you take a quick glance at the return figures, you'd see that the stock has gone from $8 at the beginning of 2013 to recent highs just south of $29. That's +262% in a year and a half, so there is certainly explosive potential here.
The thing I like about MTDR is that despite this large return, the stock consolidates often. Since last summer, nearly every short-term push to new highs has been met with a significant period of consolidation, usually lasting 2-4 weeks. This is encouraging, as it shows traders are constantly working out where MTDR should be priced rather than jumping on the momentum train.
Even with the pull-backs to test runs higher, MTDR has consistently made higher highs and higher lows for quite some time, which makes this trade pretty easy. Currently, MTDR has pulled back from late-April highs just south of $29 to the $24-$25 area. It has formed a solid base at this price range over the past 3 weeks, and recent price action suggests that the next move is another leg up to push new all-time-highs.
There is some recent upward momentum in the XOP, and MTDR should follow suit if it can hold here. It looks to be doing so this afternoon and is sitting at a pretty good buy point. Analysts at Sidoti have MTDR rated "buy", while BMO Capital has it as "market perform" with a target of $28. This works out nicely, as $28 is the next resistance test for MTDR, and is the target for this set-up.
From current prices, a run up to $28 would produce a gain of +10.89%. Our stop would be at $24, right at the low end of support. This makes the potential loss of this trade -4.95% should we get stopped out. Thus, the potential gain outweighs the potential loss by a ratio of about 2 : 1.
The move in Oil & Gas Exploration & Production stocks is still alive, though it's difficult to find a stock to get into that's not straight up. MTDR could be the answer, and its healthy technical set-up and favorable entry point scream buy this afternoon for those looking for a clear-cut swing trade this week.
Entry Method:
Buy at the current price (~$25.25).
Exit Method:
Sell at a close below $24.00 (Breakdown) / An intraday price of $28.00 or above (Profit-Taking)
Company Profile:
Matador Resources Company is an independent energy company engaged in the exploration, development, production and acquisition of oil and natural gas resources in the United States, with an emphasis on oil and natural gas shale and other unconventional plays. Its operations are focused primarily on the oil and liquids-rich portion of the Eagle Ford shale play in South Texas and the Wolfcamp and Bone Spring plays in the Permian Basin in Southeast New Mexico and West Texas. The Company also operates in the Haynesville shale and Cotton Valley plays in Northwest Louisiana and East Texas. In addition, it has a large exploratory leasehold position in Southwest Wyoming and adjacent areas of Utah and Idaho where it is testing the Meade Peak shale.
Stock Rating:
The Stock Rating indicates the combined score of our proprietary Earning Strength and Company Performance models. The rating scale is 0 - 10 with 10 being the highest.
Disclosure:
At the time of publication the editor and affiliated companies own the following positions:
None
Note: Positions may be bought or sold while this publication is in circulation without notice.
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