U.S. Oil Boom Is In Full Swing, And Funds Are Buying These 3 Oil Stocks With Short Covering

Tickers in this article: AREX BAS TDW

Back in November, the International Energy Agency released its 2012 World Energy Outlook report, which states that the U.S. is on track to becoming the world’s largest oil producer around 2020. Last year’s data lends some credence to this stance. According to BP’s (BP) Statistical Review of World Energy, crude-oil production increased by an unprecedented 1 million barrels a day in 2012. The growth, driven by technological advances such as hydraulic fracturing and horizontal drilling, is the biggest in U.S. and world history.

Investing Ideas

For this screen, we deferred to the market and looked for oil stocks with bullish sentiment from investors. To begin, we constructed a universe of oil stocks comprised of companies involved with independent oil production, oil drilling and exploration, oil equipment and services, oil pipelines, as well as oil refining and marketing.

We screened that group for stocks with significant net institutional purchases over the last quarter comprising at least 5% of share float. When institutional investors such as hedge fund and mutual fund managers make these purchases, it indicates that they expect these stocks to outperform into the future. Because these firms tend to have more sophisticated market data than the average investor, we often feel more confident in their trading decisions. 

Finally, we looked for significant short covering month over a month. This is a sign that short sellers, who benefit when share price falls, expect more upside than downside from these names.

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The List

Would you follow "smart money" investors in buying these stocks? Use this list as a starting point for your own analysis.

1. Basic Energy Services, Inc. (BAS): Provides a range of well site services to oil and gas drilling and producing companies in the United States.

Market cap at $530.47M, most recent closing price at $13.38.