🎥 Turning Momentum Into Profits With This Energy Company

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Stock of the Week: Turning Momentum Into Profits With This Energy Company


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Alpesh Patel

Alpesh Patel
Trading Champion

I've been shifting my portfolio from tech to energy pretty quickly of late. The reason is simple: That's what's working right now... and it's where my research is pointing.

And that's why I've got another energy play for you in this week's Stock of the Week.

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Coterra Energy (CTRA) is an independent exploration and production company. It has operations in Appalachia and the Permian Basin.

At the end of 2021, Coterra had reserves of 2.9 billion barrels of oil. It's not the biggest company in the world... but as a company originally founded in 1989, it's been around a long time. It's doing well... and it's in the energy space.

But it's the numbers which really attract me to this energy company.

Coterra sells its natural gas to industrial customers, local distribution companies, oil and gas marketers, major energy companies, and pipeline companies.

A year ago, I probably wouldn't have looked at it. Two years ago, I wouldn't have looked at it. It would've all been tech, tech, tech. Three years ago, it also would've been tech, tech, tech.

Well, the world's moved on, as you all know.

What attracted me to the company isn't primarily the political background of what's going on in the world. It's more the numbers and the momentum, set against that global backdrop.

So let's look at those numbers...

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Cash return on capital invested (CROCI) is 8%. That's not the greatest, but it's not bad at all.

If you'll recall, CROCI is a measure of the amount of cash that a company can generate based on its capital. It's a formula that was invented by Deutsche Bank and is followed by Goldman Sachs Wealth Management for its wealthiest clients. The higher the CROCI number, the more likely the stock is to continue doing well over the long term (not guaranteed, but more likely).

What else do I like about Coterra?

My proprietary Growth-Value-Income rating - which measures valuation, revenue growth, dividend yields and momentum - comes in at an 8. Anything at 8, 9 or 10, I absolutely love.

Price momentum has been 20% over the last six months. That shows the company has been doing rather well.

Sortino, a measure of reward versus risk, comes in at 0.13. I would like to see higher... because there's a bit of volatility with this company (in the stock price).

But Coterra's been doing well over the past couple of years. And I think it'll continue to do well given elevated energy prices, global demand and the disruption of the industry due to war.

Return alpha - a measure of a stock's outperformance relative to the market - is solid at 2.05%.

As I said, the stock has some volatility. It's touching 19%, but it's still below 20%, which is the point at which I consider something higher-risk.

Digging even deeper, return on cash employed and return on equity both look very good.


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The forecast price-to-earnings ratio is relatively low. That means the stock looks cheap. I think the market's underforecasting how well the company will do. In other words, it's currently priced at a lower level than it should be based on the profitability that's expected in the future.

Turnover is strong. Borrowing has increased in this environment, but the turnover remains very strong. Profitability has not been hampered by the increase in borrowing at relatively low interest rates. And those rates are not likely to spike up. Yes, rates are rising, but they're not likely to spike.

So on a multitude of measures - particularly forecast growth, which of course, I think the market's still trying to get its head around - this stock looks very strong and meets my metrics.

And when I look at the longer-term price chart, I see more momentum to the upside.

These are all good signs that this stock will outperform.

You can see me go through all these metrics with more data and charts by watching this week's Stock of the Week.

Click here or on the image below to watch the video.

Video - Turning Momentum Into Profits

Happy hunting,


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Alpesh Patel | Trading Champion

Alpesh Patel is an award-winning hedge fund and private equity fund manager, international bestselling author, and entrepreneur. He is the founder and CEO of Praefinium Partners, a Financial Times top FTSE 100 forecaster, and a senior Dealmaker in the U.K.'s Department for International Trade. As a recognized authority on fintech, online trading and venture capital, his past and current client list includes American Express, Merrill Lynch HSBC, Charles Schwab, Goldman Sachs, Barclays... and more.


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