The market continued its sell-off yesterday. I believe we still have a way to go on the downside, but it is not too soon to make a list of stocks reporting good news that one might want to pick up at lower levels. The energy sector, other than the refiners, has been hit hard over the past two days. However, here are two intriguing plays that reported much better than expected earnings this week and are bucking the pullback.
SM Energy Company (SM) is an independent energy company that develops and produces crude oil, natural gas and natural gas liquids in North America.
Four reasons SM has upside from $60 a share:
- One of the few E&P concerns that is actually up in this set back over the past two days. I first highlighted this stock back in June when it was trading at $51 a share. The company just provided a quarterly report that easily beat on the top and the bottom lines.
- The stock looks expensive at 20x forward earnings. However it is selling at just 4x operating cash flow which is a better valuation metric for this equity.
- The stock is increasing production and revenues at a rapid clip. It is set to grow revenues 350% from FY2009 to FY2014.
- The mean analyst price target held by the 23 analysts that follow the stock is just under $72 a share. I would look for price targets to be taken up over the next few weeks on the back of this latest earnings report.
Denbury Resources (DNR) engages in the acquisition, development, exploitation and exploration of oil and natural gas properties in the Gulf Coast region located in Mississippi, Texas, Louisiana and Alabama.
Four reasons DNR is undervalued at $18 a share:
- The company just reported earnings that easily beat estimates (36 cents a share vs. 29 cents a share projected) and revenue also beat on the top line.
- I have owned the shares since $14 a share and still think they have upside. This is another stock that is misleading, looking at forward PE (around 14.5) and better valued by operating cash flow (Just over 5x). The stock also sells near the bottom of its five year valuation range based on P/E, P/S, P/B and P/CF.
- Consensus earnings estimates had already moved up some 8% for 2013 over the last two months. Look for further upward revisions after this earnings report over the next week or so.
- The median price target on the shares by the 19 analysts that cover the stock is $23 a share, some 30% above current prices.