The oil industry has historically been the domain of Middle Eastern kingdoms, however over the last two decades or so US oil companies have made great strides towards narrowing the gap. Energy analysts predict that in order to maintain a sustainable growth in the global economy in the coming years new immense investments in the oil and gas sector are needed. Here we look at five companies that have fared well in the industry over the past few years and determine whether that performance is expected to continue for them in the future.
Apache Corporation (APA): Shares are roughly in the lower half of their 52 –week trading range of $73.04 to $134.13. The current market price translates into a market capitalization of $38.25 billion. Earnings per share for the last year were $9.95, and it paid a dividend of $0.60, yielding 0.60%. Its price to earnings ratio of 10.01 is excellent when compared to the industry average of 20.77, and also to direct competitor Anadarko Petroleum Corporation (APC), which has a price to earnings ratio of 46.62. Such favorable comparison is also present when we compare its operating margin of 48.67% (from a gross margin of 82.91%) to Anadarko’s operating margin of 20.11% (from a gross margin of 80.02%). Due to its strong financial performance as compared to its major competitors, Apache is good value for money, and should be considered a buy for expected future capital gains.
Chesapeake Energy (CHK): Shares of this T. Boone favorite are trading in the middle of their 52 – week trading range of $21.11 to $35.95. At the current market price, the company is capitalized at $17.86 billion. Earnings per share for the last year were $1.50, and it paid a dividend of $0.35, yielding 1.20%. Its operating margin of 18.28% (from a gross margin of 42.33%) is comparable to that of its nearest competitor Anadarko’s operating margin of 20.11%, from a gross margin of 80.02%. This comparison is favorable when comparing its price to earnings ratio of 18.72 to Anadarko’s 46.62; however it’s slightly on the expensive side when compared to its other direct competitors, BP p.l.c. Common Stock (BP) and ConocoPhillips Common Stock (COP), 6.12 and 8.95 respectively. It also has a higher total debt over equity ratio of 65.25 as compared to BP with a debt over equity ratio of 41.06 and ConocoPhillips with a debt over equity ratio of 39.48, indicating higher leverage. Based on its above average but far from exceptional financials, if you already own its stock then a hold strategy is recommended as there are some capital gains expected over the next quarter. However, if you are looking into entering a long position in the industry then buying a stock like Apache (APA) with its exceptional financial performance or even BP with its lower price to earnings ratio and higher dividend yields is recommended.
Talisman Energy Inc. Common Stock (TLM): Shares trading in the middle of their 52 – week trading range of $10.75 to $25.21. At the current market price, the company is capitalized at $14.80 billion. Earnings per share for the last year were $0.11, and it paid a dividend of $0.27, that’s a dividend yield of 2.0%. Its price to earnings ratio is 127.79 which is miles ahead of the industry average of 20.77 and also to that of its closest competitor BP, with a price to earnings ratio of 6.09. It’s faced negative earnings surprises over the last four quarters as well ranging from a -40 % to -81.80 %. However its earnings are expected to grow over the course of next year at around 64.60 %. Based on these figures its stock is recommended for a hold strategy. Buying new stock is not recommended as better and cheaper options elsewhere are certain to be found.
Forest Oil Corporation Common Stock (FST): Shares are trading near the lower end of their 52 – week trading range of $8.88 to $40.23. The current market price translates into a market capitalization of $1.68 billion. Earnings per share for the last year were $1.06, and it did not pay a dividend last year. Its operating margin is 39.15% which is on the higher side in its industry, with an industry average of 0.91%. Its price to earnings ratio of 14.17 is comparable to its peers Chesapeake Energy Corporation and Devon Energy Corporation (DVN) with price to earnings ratio of 19.33 and 4.86 respectively. One thing of concern might be its relatively high leverage with debt to equity ratio of 136.24. With an expected growth rate of around 6.70% over the next year, it is expected that this company will underperform over the coming year and thus buying its stock is not recommended.
Suncor Energy Inc. Common Stock (SU): Shares of this Steve Cohen favoriteare trading in the middle of their 52 – week trading range of $22.55 to $48.53. The current market price translates into a market capitalization of $51.81 billion. Earnings per share for the last year were $2.48, and it paid a dividend of $0.45, yielding 1.50%. Its operating margin of 13.74% is comparable to that of its nearest competitor Imperial Oil Limited (IMO), with an operating margin of 14.46% and better than the industry average of 0.91%. Its price to earnings ratio of 13.61 is better than the industry average of 20.77, and comparable to that of Imperial’s 11.54. However its expected growth rate for the next year of 14.50% is excellent when compared to the -2.0% of Imperial. It also has a relatively low debt to equity ratio of 29.45. With an above average growth expectation and solid financials plus the fact that it is currently trading near the lower half of its 52 – week trading range makes it a good buy, this its stock gets a buy recommendation as this company is geared to go places in the coming year.
About the author:
At Investment Underground, our editors are disciplined, independent thinkers who will inform you when to buy undervalued investments, recognize catalysts, and sell when full value is realized. We provide timely, detailed analysis of our value investing strategies and help you achieve your goals of a reduced-risk trading environment.
If you are fed up with volatile markets and manipulation that put your financial well-being in jeopardy, join us to achieve those gains you deserve without the headache.