Stock Picks: LUK and MRO

The S&P 500 (SPX) went as high as 2,742.10 yesterday, May 14, 2018, before succumbing to profit taking. This pullback is healthy given the index’s rally from a low of 2,594.62 on May 3. The bullish outlook remains as long as the SPX remains above 2,680.

As the index remains resilient, let’s look at stocks flashing signs of strength.

LUK – Leucadia National Corporation

Leucadia National Corporation (LUK) is an American conglomerate and investment holding company. Incorporated in 1968, it is a company focused on return on investment and long-term value. Their financial services business portfolio includes Berkadia Commercial Mortgage LLC, Foursight Capital and Chrome Capital, FXCM Group LLC, HomeFed Corporation, Jefferies Group LLC, and Leucadia Asset Management.

Technical analysis show that LUK is primed to take out resistance of 27. This comes after it created a bullish higher low setup when it dropped to as low as 21.61 on April 6, 2018. The setup was affirmed by a strong bounce to 24.75 on April 9 with volume that’s 173.47% higher than its daily average. Breach of the resistance would trigger the cup and handle reversal structure on the weekly chart.

Also, fundamental analysis show that the trailing twelve months (TTM) price to earnings ratio (PE ratio) of LUK is 19.66. The stock looks fairly valued based on the PE ratio, but it has a five-year maximum of 171.43. This suggests that investors are willing to pay a premium for LUK shares.

The strategy is to buy the breakout at 27 as long as the stock prints seven million shares on the daily chart. Those who bought the higher low are likely to take profits at the resistance. The stock needs buyers to absorb the selling pressure.

Once bulls take out the resistance, the stock may attract trend followers and momentum traders who may help lift LUK to our target of 39. The process may take more than six months.

Weekly LUK Chart

Monthly LUK Chart


As of this writing, the Luecadia National Corporation stock is trading at 24.57.

Summary of Strategy

Buy: Buy breakout at 27 as long as the stock generates seven million shares on the daily chart.

Target: 39

Stop: Close below 25.2 after the breakout.

MRO – Marathon Oil Company

Marathon Oil Corporation (MRO) is an American petroleum and natural gas exploration and production company founded in 1887. They primarily operate in North America: Eagle Ford in Texas, Permian in New Mexico, STACK and SCOOP in Oklahoma, and the Bakken in North Dakota. The company’s international segment produces and markets crude oil and condensate, NGLs and natural gas outside of North America, and Equatorial Guinea (E.G.). The Oil Sands Mining segment mines, extracts, and transports bitumen from Alberta, Canada.

Technical analysis show that MRO has taken out resistance of 19. This triggered the inverse head and shoulders pattern on the weekly chart. The breakout was affirmed by a rally to 21.68 on May 9, 2018. However, the stock is touching overbought territory on the daily chart. The possible dip should be your opportunity to buy near the breakout point.

Furthermore, fundamental analysis reveal that MRO’s trailing twelve months (TTM) PE ratio stands at 14.68. The stock still looks attractive considering that its five-year maximum is 26.02.

The strategy is to buy on dips as close to 19 as possible. As long as the stock stays above 19, it has the momentum to climb to our target of 31.50.

The process may take six months.

Weekly MRO Chart

Monthly MRO Chart


As of this writing, the Marathon Oil stock is trading at 21.42.

Summary of Strategy

Buy: Buy on dips as close to 19 as possible.

Target: 31

Stop: 18

Featured image courtesy of Shutterstock.

Tags:
Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.