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Arnold Van Den Berg's Top New Buys - 4 Oil & Gas Companies
Posted by: Holly LaFon (IP Logged)
Date: October 9, 2012 04:58PM

Arnold Van Den Berg is a veteran value investor who has grown his firm, Austin-based Century Management, to $1.9 billion in assets under management since its founding in 1974. Van Den Berg and his team estimate the intrinsic value of a business based on its fundamentals, and also consider its risks/headwinds, potential rewards, unique characteristics and industry dynamics. They also ask for a significant margin of safety and embrace market volatility to buy at lower prices than they believe the stock is worth.

Van Den Berg released his third-quarter portfolio today, which revealed four new positions, all in the oil and gas industry. He is bullish on natural gas and the growing infrastructure to export to foreign markets in particular.

“We now have 100 years of natural gas reserves and are increasing all the time. This has brought about due to the productivity in natural gas production. And while it’s not going to be a big thing in the next six months or a year, these are the kind of underlying trends that will propel this country into prosperity in the next three to five years and also a major bull market after this back and forth thing that we’ve experienced over the last few years,” he said at the Texas Association of Public Retirement Systems (TEXPERS) 2012 Educational forum on Aug. 20, 2012.

His four new stocks are: Total S.A. (ADR) (TOT), Helmerich & Payne Inc. (HP), Unit Corporation (UNT) and Dawson Geophysical Company (DWSN).

Total S.A. (TOT)

France-based Total is a multinational oil and gas company with business across the natural gas and oil chain. Van Den Berg bought 279,773 shares of the company at an average price of $48 in the third quarter, accounting for 1.6% of his portfolio. In the last year, TOT’s stock has traded in a range of $41.75 to $57.06, falling to close to its 52-week low in the third quarter, as well as its lowest P/E ratio since 2008.

Total has a market cap of $118.87 billion; its shares were traded at around $49.48 with a P/E ratio of 7.5 and P/S ratio of 0.5. The dividend yield of Total stocks is 4.9%. Total had an annual average earnings growth of 12.1% over the past 10 years. GuruFocus rated Total the business predictability rank of 4-star.

In the second quarter, TOT’s net income declined 9% in dollars year over year, as crude prices declined 7%. It also increased its share of the Ichthys liquefied natural gas project in Australia from 24% to 30%, strengthened its strong presence in fast-growing Asian markets and cemented its position as a global leader in liquefied natural gas.

Helmerich & Payne Inc. (HP)

Van Den Berg purchased 199,075 shares of HP at an average price of $46.50 in the third quarter. The stock has declined about 17% year to date. HP primarily drills oil and gas wells for others on contract on land in the U.S. and internationally, and offshore.

HP has a market cap of $4.97 billion; its shares were traded at around $48.54 with a P/E ratio of 9.6 and P/S ratio of 2. The dividend yield of HP stocks is 0.6%. HP had an annual average earnings growth of 21.1% over the past 10 years. GuruFocus rated HP the business predictability rank of 4.5-star.

HP’s net income for the quarter ended July 30, 2012, was $149,925,000 ($1.38 per diluted share), compared to $109,826,000 ($1.01 per diluted share) in the same period the previous year. As oil prices decline, the company’s customers are adjusting their budgets, leading to softened demand.

HP plans to add 25 of its FlexRigs under long-term contracts with customers to its existing 279 land rigs in the U.S., 29 international land rigs and 9 offshore platform rigs.

Unit Corporation (UNT)

Van Den Berg purchased 120,865 shares of UNT at an average price of $40 in the third quarter. UNT’s stock has declined almost 11% year to date and increased 6% over the last year. UNT is another contract oil and natural gas drilling company. In September 2012, its subsidiary, Unit Petroleum Company, acquired certain oil and natural gas assets from Noble Energy (NBL), increasing its proved reserves 38% from year-end 2011, and sold certain of its Bakken properties.

For the quarter ended June 30, 2012, UNT reported a net loss of $19.3 million, or $0.40 per diluted share, compared to net income of $49.8 million, or $1.04 per diluted share in the second quarter the previous year. Second quarter results included a non-cash ceiling test write down of $115.9 million, required to reduce the carrying value of its oil and natural gas properties resulting from significantly lower commodity prices in the second quarter of 2012. Without the write down, net income would have been $52.8 million, or $1.10 per diluted share.

UNT has a market cap of $1.97 billion; its shares were traded at around $41.5 with a P/E ratio of 9.2 and P/S ratio of 1.6. UNT had an annual average earnings growth of 13.1% over the past 10 years.

Dawson Geophysical Company (DWSN)

Van Den Berg in the third quarter bought 26,385 shares of DWSN at an average price of $23, comprising 0.076% of his portfolio. The stock dropped 38% year to date and 6% over the last year, trading in a 52-week range of $20.20 to $40.76. DWSN acquires and processes 3D seismic data for its clients, mainly oil and gas companies and independent oil and gas operators in the lower 48 states.

Dawson Geophysical Company has a market cap of $200.1 million; its shares were traded at around $24.49 with a P/E ratio of 17.3 and P/S ratio of 0.6. Dawson Geophysical Company had an annual average earnings growth of 30.9% over the past 10 years. When Van Den Berg bought the stock in the third quarter, it traded near its lowest P/E, P/S and P/B ratios of the year.

DWSN’s revenues for the quarter ended June 30, 2012, declined to $68.4 billion, compared to $98 million the same period the previous year, primarily due to lower utilization rates as a result of poor weather, land permit access issues and client delays, and lower third-party reimbursable charges in the quarter. Net income increased to $1.1 million, or $0.15 per share, from $334,000, or $0.04 per share in the same period the previous year, primarily due to reduced operating expenses and higher transaction costs. The company’s order book levels were at their highest levels since 2008 at quarter-end as clients continue to search for oil and gas, and it expects the trend of higher utilization to continue into its fourth quarter.

DWSN is current expanding into Canada and expects its Western Canada operations to start up in the 2012 to 2013 winter season based on strong demand for seismic services in the country.

See Arnold Van Den Berg’s portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Arnold Van Den Berg.

Guru Discussed: Arnold Van Den Berg: Current Portfolio, Stock Picks
Stocks Discussed: TOT, HP, UNT, DWSN,
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