In a volatile economic environment, the oil & gas sector can offer diversity to your portfolio by providing a hedge against other stocks that decline due to the rise in oil prices. An investment in small and mid-cap companies has great profit potential when a single well produces oil. The revenues generated from this can be multiple times the drilling costs. This often leads to companies returning cash to shareholders in the form of dividends.
As the U.S. Energy Information Administration (EIA) and OPEC raise their forecasts for global oil demand in 2013, we think the sector is worth a second look.
To create the list below, we screened for oil & gas stocks with strong sales trends, comparing growth in revenue to growth in accounts receivable. Since accounts receivable is the portion of revenue not yet received, and there is no guarantee the money will ever be received, the smaller the portion of revenue made up of receivables, the healthier the company's revenue.
We looked for stocks seeing faster growth in revenue than accounts receivable year-over-year, as well as accounts receivable comprising a smaller portion of current assets over the same time period.
Finally, we researched their 13Fs looking for bullish sentiment from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers expect these names to outperform into the future.
Do you think money managers are encouraged by the strong top-line growth?
The List
For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.
Do you think hedge funds are calling it right on these names? Use this list as a starting point for your own analysis.
1. Diamond Offshore Drilling Inc. (DO): Operates as an offshore oil and gas drilling contractor worldwide.
- Market cap at $9.69B, most recent closing price at $69.32.
- Net institutional purchases in the current quarter at 5.8M shares, which represents about 8.42% of the company's float of 68.90M shares. The 2 top holders of the stock are Lowes Corporation, and T. Rowe Price.
- Revenue grew by 0.29% during the most recent quarter ($750.54M vs. $748.36M y/y). Accounts receivable grew by -11.4% during the same time period ($499.66M vs. $563.93M y/y). Receivables, as a percentage of current assets, decreased from 28.3% to 23.43% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
2. Hercules Offshore, Inc. (HERO): Provides shallow-water drilling and marine services to the oil and natural gas exploration and production industry in the U.
- Market cap at $1.08B, most recent closing price at $6.78.
- Net institutional purchases in the current quarter at 9.6M shares, which represents about 6.3% of the company's float of 152.34M shares. The 2 top holders of the stock are Dimensional Fund Advisors, and Addison Clark Management.
- Revenue grew by 24.47% during the most recent quarter ($202.63M vs. $162.79M y/y). Accounts receivable grew by 9.27% during the same time period ($167.94M vs. $153.69M y/y). Receivables, as a percentage of current assets, decreased from 43.91% to 35.09% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
3. Oiltanking Partners, L.P. (OILT): Provides integrated terminaling, storage, pipeline, and related services for third-party companies engaged in the production, distribution, and marketing of crude oil, refined petroleum products, and liquefied petroleum gas.
- Market cap at $1.71B, most recent closing price at $44.37.
- Net institutional purchases in the current quarter at 827.2K shares, which represents about 7.24% of the company's float of 11.43M shares. The 2 top holders of the stock are Goldman Sachs Group, and Tortoise Capital Advisors.
- Revenue grew by 15.45% during the most recent quarter ($33.33M vs. $28.87M y/y). Accounts receivable grew by -73.07% during the same time period ($9.97M vs. $37.02M y/y). Receivables, as a percentage of current assets, decreased from 69.85% to 55.14% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
4. Calumet Specialty Products Partners LP (CLMT): Produces and sells specialty hydrocarbon products in North America.
- Market cap at $2.47B, most recent closing price at $39.80.
- Net institutional purchases in the current quarter at 3.3M shares, which represents about 8.35% of the company's float of 39.53M shares. The 2 top holders of the stock are Morgan Stanley, and Citigroup.
- Revenue grew by 19.91% during the most recent quarter ($1,220.88M vs. $1,018.13M y/y). Accounts receivable grew by 6.94% during the same time period ($226.78M vs. $212.06M y/y). Receivables, as a percentage of current assets, decreased from 27.23% to 27.19% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
*Institutional data sourced from Fidelity, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
