New Trade for September 21st, 2023

RSI (Relative Strength Index) is a technical measure of whether a security or commodity is overbought or oversold, and values above 70 are often considered overbought, while values below 30 are often considered oversold. 

Recent data showed that oil’s RSI (Relative Strength Index) indicated the commodity was a bit overbought at just over 79. 

Oil prices may stay higher for longer, but this probably isn’t the best entry point to buy oil itself. 

But what if you could get a better entry point now for a bet on oil? 

That may be the case with Evolution Petroleum (EPM), here’s why…

 Evolution Petroleum (EPM)

As of yesterday, EPM’s RSI was under 30, well into oversold territory, following a sizeable gap down. That was a result of the company’s earnings miss, but opportunistic investors may see this as a gift considering its solid fundamentals.

The company ended last quarter with plenty of cash on its balance sheet and zero debt. But it missed on top and bottom lines due to downtime and maintenance issues in some of its fields and lower oil ($69.51 per barrel on average) and natural gas prices ($2.44 per MCF, or thousand cubic feet) in the quarter. 

The good news, though is that maintenance issues are temporary, and oil and natural gas prices are significantly higher in the current quarter, with WTI (West Texas Intermediate) oil trading at about $90 per barrel now and natural gas trading at about $2.77 now. That ought to be reflected in this quarter’s earnings, which are scheduled to be reported in early November.  

The stock’s fundamentals are excellent. It has a Piotroski F-Score of 8 (on a scale of 1-9, where 9 is best), and Chartmill gives it an aggregate fundamental rating of 8.

With all of its production in the U.S., this company avoids the political risk associated with global oil companies, and its small size lets it target fields that wouldn’t move the needle for oil majors. 

EPM also comes with a nice-sized dividend. At yesterday’s closing price of $6.80, the stock was yielding nearly 7% annually. 

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