3 Energy Stocks Gushing with Growth - Investment Ideas
05 January 2012 - 11:00AM
Zacks
Are the exploration stocks about to bust out of the doghouse?
2011 was a tough year for many of the energy
stocks, especially the smaller explorers.
They were beaten down in the summer sell-off with
some declining 50% as investors feared that a global recession was
soon to start. Any global slowdown would clearly mean lower energy
prices.
But when that didn't happen, the exploration
companies were suddenly super cheap. They have since rallied off
the summer lows but haven't yet regained the old highs. They are
still out of favor with investors.
Will Iranian Tensions Be a Catalyst?
At the end of 2011, crude surged to close at just
under $100 a barrel. In 2012, the upward momentum has continued as
the price has risen 9 of the last 12 sessions and is still holding
over $100.
Traders are blaming the saber-rattling out of Iran.
Iran is threatening to shut down the Strait of Hormuz, a major
shipping lane for crude, if the EU follows through with a proposed
oil embargo. Twenty-eight EU Foreign Ministers are meeting on Jan
30 to debate an embargo but many believe it is probably a done
deal.
The EU uses about 600,000 barrels of Iranian oil a
day which could be replaced by the Saudis if they raise production
(which they have already offered to do.) But the embargo would
still make tight supplies even tighter.
Analysts are already guessing we'd have $125 a
barrel oil if the oil embargo actually happens. It could go higher
still if the Strait of Hormuz was shut and/or an actual military
conflict occurs in the Persian Gulf.
The Magic Combination
What if you could buy a stock with a cheap
valuation but which was also growing its earnings by the double or
triple digits? Too good to be true? Not with some of the
exploration companies.
Because the stocks are out of favor, valuations are
very attractive. That means P/Es below 15, which is what I usually
deem a "value" stock.
Earnings growth was explosive in 2011 and Zacks
Consensus Estimates are also flashing bullish signals about 2012 as
another year of double digit earnings growth appears to be on
tap.
With the stocks so out of favor but the market now
preparing for the possible perfect storm of growing demand but
tight supply due to a Middle East oil shock, now may be a perfect
time to add energy positions to your portfolio.
3 Energy Companies With Explosive Earnings
Growth
Forget the small caps. The mid-cap explorers have
great valuations and amazing growth projections.
1. Plains Exploration & Production
Company (PXP)
Headquartered in Houston, Plains explores for oil
and gas in California, the Gulf Coast region, including the
Haynesville and Eagle Ford Shale, the Gulf of Mexico and the Rocky
Mountains.
This Zacks #2 Rank (buy) has a $5.5 billion market
cap.
2010 Earnings: $1.06
2011 Expected Earnings: $1.79 (growth of 69%)
2012 Expected Earnings: $3.30 (growth of 84%)
Forward P/E: 11.8
2. Rosetta Resources Inc. (ROSE)
You might not have heard of Rosetta but it isn't a
small company as it has a market cap of $2.4 billion. Like Plains,
is also based in Houston but has exploration operations mainly in
South Texas, including the Eagle Ford shale and the Southern
Alberta Basin in northwest Montana.
It is also a Zacks #2 Rank (buy).
2010 Earnings: 61 cents
2011 Expected Earnings: $1.97 (growth of 223%)
2012 Expected Earnings: $3.54 (growth of 81%)
Forward P/E: 12.7
3. Berry Petroleum Company (BRY)
Based out of Denver, this exploration company
operates in California, the Uinta basin in Utah, East Texas and the
Permian Basin and in Colorado.
This Zacks #2 Rank (buy) has a market cap of $2.4
billion.
2010 Earnings: $1.53
2011 Expected Earnings: $2.65 (growth of 73%)
2012 Expected Earnings: $3.92 (growth of 48%)
Forward P/E: 11.2
Tracey Ryniec is the Value Stock Strategist for
Zacks.com. She is also the Editor of the Turnaround Trader and
Insider Trader services. You can follow her on twitter at
traceyryniec.
BERRY PETROLEUM (BRY): Free Stock Analysis Report
PLAINS EXPL&PRD (PXP): Free Stock Analysis Report
ROSETTA RESRCS (ROSE): Free Stock Analysis Report
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