1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Dividend King
Dividend King
Articles (71)  | Author's Website |

5 Deeply Undervalued Oil & Gas Giants

February 20, 2012 | About:

The market outlook of 2012 is estimated to depict positive trends in the oil and gas sector. Also, the concept of natural gas as the future "big" resource in the energy sector is gaining much significance. Therefore, it is suggested that investors should also start looking at purchasing stocks of those companies which also engage in natural gas extraction and exploration. However, one should have a medium to long-term perspective in engaging in the purchase of such stocks.

The following are certain companies that occupy a prominent place in the oil and gas sector, and that engage in business activities pertaining to natural gas. However, it is recommended to see the fundamentals of the company in the process of your investment selection.

One of the largest natural gas producers, Equitable Resources Inc. (NYSE:EQT), currently has market price of around $50. The stock has lost approximately 19.15% in the previous three months of trade. Having a P/E of around $15.84, Equitable Resources implies market capitalization of $7.3 billion. There are currently 24 hedge funds which back Equitable Resources on the basis of its potential to recover in this already oversold market. Although the company has a relatively large P/E of approximately $20, I would recommend investors to buy Equitable Resources at the current levels on the basis of my perception that the oil and gas sector will gain momentum, and that all the stocks within the sector having descent fundamentals, however oversold, will recover during this phase of the sector gaining momentum.

As an independent natural energy provider, Berry Petroleum Co. (BRY) is engaged in the development, acquisition, exploration and production of oil and natural gas. The current market value of the stock is around $46.71, trading within its 52-week range from $61.17 to $30.59. With earnings per share at around $3.34, and P/E at $13.90, the company appears to be trading at a discount as compared to its peers in the oil and gas sector. The market capitalization of the company is $2.32 billion, and forward price earnings of 11.05, the company has performed fairly well so as to depict a rise in the trajectory from $1.02 in 2009 to $4.20 as projected in 2012. As the company is trading at a relatively lower price, however with an above average cash flow and durable reserves, I would recommend buying this stock at its current levels, with a long-term perspective.

Kinder Morgan Energy Partners LP (KMP) is a North American energy storage and pipeline transportation company. Currently trading at around $86.38, it is well within its 52-week range of $90 and $63.42. Since the last quarter of 2011, the company has shown a positive uptrend which should continue even further. However, one can buy this stock on dips, below the price of $80. It has market capitalization of around $29.50 billion and is approximately 33 times its forward earnings. Considering the oil and gas sector to continue its upward trend throughout 2012, Kinder Morgan Energy Partners LP can achieve a target of $95 within six months from its current levels. However, with over 7% returns in the past 3 months, a low forward price to earnings ratio, and over 4% dividend yields, the stock could be best purchased on dips below $80, with a medium to long-term perspective.

National Fuel Gas Co. (NYSE:NFG)
is a holding company in the oil and gas sector, incorporated in 1902 in New Jersey, managing four business segments, namely, The Utility segment operations are carried out by National Fuel Gas Distribution Corporation (New York), The Pipeline and Storage segment operations are carried out by National Fuel Gas Supply Corporation (New York), Seneca Resources Corporation (Pennsylvania), and Highland Forest Resources, Inc. (New York). National Fuel is currently trading at around $48.48, within its 52-week range of $75.98 and $44.51 respectively. With market capitalization of around $4.03 billion, National Fuel implies a price earnings ratio of approximately $15.80, while its earnings per share are around $3.12. Considering the financial strength as well as its current market price, National Fuel stands undervalued. An upside of around 17.55% is expected from its current level of market price. Although the stock has underperformed over the last year, 2012 promises to bring an upward trend in the stock movement. In my opinion, National Fuel Gas should be purchased at its current levels, with a short to medium term perspective.

Williams Companies Inc (NYSE:WMB) is a company engaged in diversified business segments like exploration, construction of gas pipeline, production, planning of mainstream gas and liquids, and other activities pertaining to natural gas. With its current market share poised at around $29.06, trading within the range of 52-week highs and lows of $33.47 and $21.90 respectively. With earnings per share around $1.67, Williams Companies has price earnings ratio of approximately 17.40. The company has market capitalization of $17.13 billion, trading at multiples of 17 of its past earnings, and at approximately 19 times its estimated forward earnings. However, the stocks earnings per share is forecast to grow by around 6% in 2013, with the stock 2012 outlook to remain very optimistic.

The company's main drivers in 2012, which are said to catalyze its growth, include its acquisitions. Acreage in the Marcellus, Bakken, Piceance, and Southern Union are poised to be the company's potential acquisitions. Moreover, the stock is estimated to grow by 13% in the next one year. In my opinion, any company having descent potential for performance and growth, and which has natural gas as its core business should not be neglected. Williams Companies Inc. at its current market price looks attractive for purchase with a medium to long-term perspective.

About the author:

Dividend King
I am primarily an investor interested in creating passive income streams through dividends. I focus on finding and analyzing dividend paying stocks, MLPs and REITs that are a good fit for income investors.

I practice Judaism and my faith is very important to me. I visit family in Israel once a year, but I am educated and work in the United States where I hold an MBA and a bachelor’s in English. I am a patient man, enjoy wine but am not a connoisseur, and I listen more than I speak.

Visit Dividend King's Website

Rating: 3.5/5 (13 votes)


Please leave your comment:

Performances of the stocks mentioned by Dividend King

User Generated Screeners

pbarker46Total Payout Yield
DBrizanrota16Jan2018 1143p
DBrizanrota16Jan2018 1118p
DBrizanrota16Jan2018 1114p
pbarker46BV & TBV
doniemaherScreen #27 - ROI
aroblessAJR - PIEC (Asia)
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat