This Stock from a “Hated” Sector could Jump 20%

It seems as though no one is particularly fond of the oil and gas sector recently. Oil is down more than 50% during the past four years, while natural gas has been in a bear market since the end of 2000, with prices falling more than 90% since then.

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Most of the companies that produce oil and gas have suffered as well, but even in the most hated sectors, you can usually find a stock to love. And I have one for you in this sector that has solid earnings growth and a great chart pattern.

While tough business conditions make it difficult for everyone in a sector, the companies that are thriving are likely the best in the industry. They are also the ones with the greatest chance of being big winners when prices recover. And history tells us that prices always recover… eventually.

Now that commodity prices are likely nearing a bottom, I’ve been looking at the weekly charts to find stocks that are breaking out from bases.

The one that caught my eye is Pennsylvania-based Rex Energy Corporation (NASDAQ: REXX), a company heavily involved in fracking, a process used to extract shale oil from fields that were unprofitable without this technology.

REXX Chart

REXX’s chart is screaming “buy.” Since January, it has traded within a range between about $9 and $11.50 a share. It broke out of that range in the past week, and is on track to hit $15 a share if history repeats itself.

This is the fourth time in three years that we’ve seen a breakout from a base at this level. REXX has run up to $15 three of those four times, and we could have closed the fourth trade with a small profit by using the 26-week moving average as a stop.

That is the strategy for this trade: Buy REXX now with an initial price target of $15, for a profit of close to 20%, and use the 26-week moving average at $10.50 as a stop loss.

While I rely primarily on chart analysis as opposed to fundamentals, I do look for “Growth at a Reasonable Price,” also know as GARP investing. A good metric for this is a stock’s price/earnings growth (PEG) ratio. PEG shows the ratio between a company’s P/E ratio (valuation) and its expected earnings growth rate over the next several years.

A GARP investor would pick stocks that have a PEG of 1 or less, and REXX passes this test with a PEG of 0.63. With fundamentals that support the technicals, REXX is a buy.

Recommended Trade Setup:

— Buy REXX at market price
— Set stop-loss at $10.50
— Set initial price target at $15