Energy Stock In Base, But Group Is Getting Beaten Down

Energy stock Diamondback Energy (FANG) had a rough day Friday and gapped down over 9%, spoiling a handle in its current base. Oil and gas stocks were down with fears that a recession could lessen demand for oil.

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The Texas-based company specializes in the acquisition, development and exploration of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas.

Energy Stock Sees Cup-With-Handle Base

Diamondback Energy stock dropped sharply below a price area that had been the handle of a cup-with-handle base with a 141.87 buy point. Shares are now trading well below the 200-day moving average. The stock and its relative strength line took a turn for the worse in mid-September after JPMorgan Chase cut its price target to 161 from 170 on the energy stock.

Good Earnings And Fundamentals

Diamondback reported a beat on Q2 earnings and sales on Aug. 1. The company has shown consistent triple-digit quarterly EPS growth, with the June-ended quarter EPS at $7.07, up from $5.20 in March and $3.63 in December, according to MarketSmith.

Analysts expect $25.86 annual EPS in 2022, more than double the $11.27 in 2021. Diamondback has a 38% three-year EPS growth rate, according to IBD’s Stock Checkup.

Quarterly sales have been impressive, though starting to decelerate, with the June quarter up 65%, falling behind December’s 103% and March’s 163%.

The company boasts a best-possible 99 Composite Rating and a high 94 EPS Rating.

Diamondback has an adequate 19% return on equity, a measure of profitability and financial efficiency. The CAN SLIM investing strategy looks for a minimum 17% ROE, with 25% to 50% in the best-performing growth companies.

Diamondback offers a lofty 6.3% annualized dividend yield to shareholders.

Oil And Gas Group Losing Steam

Diamondback stock holds a top spot in the Oil & Gas Exploration group, which is ranked a strong No. 11 out of 197 industries IBD tracks. The group is losing its elite status, though. It was ranked No. 4 just one week ago. The group has a 94 Group Relative Strength Rating, down from 98 one week ago.

Mutual funds own 60% of the stock, including the large-cap growth Fidelity Contrafund (FCNTX). Shares were in the portfolios of 1,696 mutual funds in June, up from 1,599 in March and 1,514 in December.

Citigroup raised its price target on Sept. 21 to 155 from 148 and maintains its buy rating on the stock. KeyBanc initiated coverage on Sept. 20, with an overweight rating and a price target of 163.

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