Concho Resources (NYSE:CXO) is a Speculative Energy Buy

Photo of author

By Jacob Maslow

cxo logoIf you’re looking to roll the dice and come out a winner in this depressed global energy market, you have to really pay careful attention as to the energy stocks you invest in. It’s very tempting to zero in on an energy stock just because it’s depressed. In fact, it’s very tempting to try to snap up energy shares at prices that are extremely cheap. The old thinking is that you’re going to buy on bad news, so it logically follows that you need to buy stocks that have been really, really hammered hard.

The problem with this logic is not all energy players are created equal. Some energy players have a solid portfolio of energy assets located all over the world or at lucrative areas in the United States. Moreover, these players have lower debt and have more industry connections. Put all these factors together, it follows logic then that if the energy market recovers sometime soon, these companies would get back on their feet faster than other companies that are buried in debt, have smaller assets to work with, or are suffering from other structural setbacks. This is the kind of analysis you need to do.

One key area you need to look at is where this particular energy company gets its oil or natural gas from. With that factor, one speculative buy in terms of scooping up depressed energy stocks is Concho Resources (NYSE:CXO). This stock recently closed at around $110 or slightly below $110. You might think that this is not depressed at all. After all, its stock price is still over $100.

Well, there’s a reason why its stock is still high despite the beating other energy stocks are getting. This is a solid play. You only need to look at where it gets its energy stores from. It is located in the Permian Basin of West Texas. This independent natural gas and oil company is into exploration, development, and acquisition. It has a solid resource portfolio, and it has a lot of money. It recently closed a secondary stock offering which netted the company around $650 million. Moreover, some of these funds would go to paying down its debt.

Considering its mineral rights as well as its financial position, it should not be surprising if Concho Resources survives the current downturn. Moreover, it shouldn’t be also surprising given its pretty solid position that it may be taken over during an industry consolidation.

Images Courtesy of DepositPhotos