Best of Oil & Gas Sector
The plot below displays BSE Oil & Gas and Sensex.
The plot below displays the relative performance of Bse Oil & Gas vs Sensex.
Here we have made a comparison of returns of BSE Oil & Gas Sector Index with Sensex. The red line illustrates the relative performance of BSE Oil & Gas vs. Sensex.
Though Oil & Gas sector had periods of outperformance compared to BSE Sensex, the ratio line shows that the Oil & Gas sector has consistently underperformed Sensex for the last 12 months.
Unlike the health care top performing sector we covered the last time(The best of Pharma), the Oil & Gas sector is on the other end of the performance spectrum. And since performance is prone to a reversion, as we have indicated in our mean reversion indexing paper.(Mean Reversion Indexing)
The Oil & Gas sector becomes more interesting for stock picking. The underperformance of the sector is also suggested by the quarterly Jiseki performance rankings of the Oil & Gas sector components among the BSE 500 universe. Around 95% of the components show the ranking below 50 percentile and 6 components are below 20 percentile performance rankings. This not only makes the sector undervalued, but also offers compelling inexpensive valuations to BUY.
Even from a macro economic perspective, India is an oil deficit country. It depends heavily on imports for its domestic crude oil demand. Considering our consumption case (The Crazy Consumption), the demand for crude oil is expected to increase. The buoyancy in global prices should assist the industry players to generate superior profits.
Recommendations
In the Oil & Gas sector Aban Offshore is a stock we recommend to buy. Below we discuss these stocks based on their Jiseki cycle and rankings. The proprietary ranking methodology looks at numerous performance criteria such as price performance, relative out performance, Jiseki rankings.
Aban Offshore
Aban offshore is ranked 18th based on Orpheus proprietary ranking methodology, which makes it the best performer in the sector. The stock has a positive price trend and positive Jiseki cycle since the last 70 days generating a 9.2% return for the period.
From a quarterly Jiseki performance ranking perspective also the stock is below 10 percentile which suggests that despite the intermediate multi week upside, among the BSE 500 stocks ABAN is still undervalued.
ORMI methodology looks at buying the worst negative outliers as they are prone to a positive reversion. The P/E ratio for the stock is low (undervalued) compared to its peer group and it shows a positive ROE.
Technical Review
We are positive on Aban Offshore as the prices continue to move up in a rising channel. Above this RSI momentum is above 40 levels. This is also positive. Prices broke the lower end of the Bollinger band and are at key inflexion point. A price reversal here would re-confirm the positivity. Above 435-440 levels, we remain positive.
Summary
We have 6 running total positive (both Jiseki and price signal positive), 3 running total negative (both Jiseki and price signal negative) and rest neutral (both Jiseki and price signal non-confirming).
Positives (6)
There are 6 components that are positive on both price and Jiseki cycle. Among these components, Aban Offshore and Great Offshore made a profit of approx 9% and 6% in span of around 70 days.
Negatives (3)
There are 3 components that are negative on both price and Jiseki cycle. Hindustan oil showed a loss of approx 3% in 7 days.
Non-Conforming (9)
This leaves us with 9 components that have a non-confirmation between price and Jiseki cycle filters.