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It appears the second quarter is going to open with more volatility than investors grew accustomed to during the first quarter rally. Today it appears the market is marching to its second decent decline in the first three trading plays of the quarter. It might be a good time to look at the energy sector which underperformed the overall market in the first quarter. Here are two smaller names in my portfolio that sport cheap valuations and good growth prospects. I will be looking to add to these positions if the market continues its recent sell-off.

ION Geophysical Corporation (NYSE:IO) provides planning and seismic processing services, software, and acquisition equipment to the energy industry worldwide.

4 reasons IO has upside at just over $6 a share:

  1. Analysts expect the company to grow revenues at a 13% CAGR over the next two fiscal years. The stock sports a five year projected PEG of under 1 (.77).
  2. The stock is selling at just 5x operating cash flow.
  3. The five analysts that cover the stock have a $9 median price target on the shares, significantly above the current stock price.
  4. The stock sells for just 13x this year's projected earnings, less than half its five year historical average (27.4).

Emerald Oil (NYSEMKT:EOX) engages in the exploration and production of oil and gas in the United States. The company focuses on the development of operated wells in the Williston Basin in North Dakota and Montana.

4 reasons EOS should go higher from just over $6 a share:

  1. The eight analysts that cover the shares have an $8 a share price target on the shares. Canaccord Genuity upped its price target to $11 in Mid-March. Global Hunter Securities upgraded the shares from "Neutral" to "Buy" in Mid-February.
  2. The company is projected to grow revenues north of 80% for both FY2013 and FY2014. The company posted a small loss in FY2012 and is expected to post a small gain in FY2013. However, it has been operating cash flow positive over the past 12 months.
  3. This is a FY2014 story where the company should start to print profits. Analysts expect 55 cents a share in the black for 2014. An investor is paying just over 12x 2014's projected earnings currently.
  4. Given the company's small market capitalization (under $200mm), robust production growth and operations in key shale regions (Ex, Bakken); I would not be surprised if company did not eventually find itself a buyout target.
Source: 2 $6 Energy Concerns Worth Exploring