2 $7 Speculative Picks From The Energy Patch

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 |  Includes: SYRG, WG
by: Bret Jensen

Despite concerns about worldwide growth, flat revenues from the S&P this quarter and a myriad of other worries, the market continues to rally on the back of the continued largesse from the Federal Reserve. I am finding less and less value in this market especially in defensive sectors (Utilities & Consumer Staples) that has such significant rallies through the first four months of the year.

Most of the value I do find while researching possible trades are in the Energy & Technology sectors. Embracing the current "Risk On" sentiment within the market currently, here are two speculative $7 stocks from the energy patch that should do well if the rally spreads to sectors that have underperformed the overall market so far in 2013.

Willbros Group (NYSE:WG) provides engineering, procurement, and construction services to the oil and gas, refinery, petrochemical, and electric power industries primarily in the United States and Canada.

4 reasons WG could have upside from $7 a share:

  1. The company should be buoyed by the long term need to build out our domestic energy infrastructure to meet burgeoning domestic energy production. UBS named Willbros as one of 8 firms that should greatly benefit from increased spending on energy & chemical infrastructure in March.
  2. The seven analysts that cover the stock have a median price target of $9 a share on WG.
  3. The stock sells at less than 9.5x 2014's projected earnings. Its five year average valuation based on forward P/E (24.1) is much higher.
  4. WG is selling at the bottom of its five year valuation range based on its price to sales ratio and insiders are not selling despite the stock's run up over the last year. Finally, given its position within energy & chemical construction, small market capitalization (~$600mm including debt) and significant revenue base versus its stock price, I could see it being a logical acquisition candidate for a larger player in the oil services/construction space.

Synergy Resources Corporation (NYSEMKT:SYRG) engages in the acquisition, exploitation, exploration, development, and production of oil and natural gas properties primarily located in the Wattenberg field in Denver-Julesburg Basin in northeast Colorado.

4 reasons SYRG can go higher from just under $7 a share:

  1. I last highlighted these shares when they were trading at $4 back in September 2012. The stock still looks good at 13.5x forward earnings given its significant production growth.
  2. Insiders are still buying despite the run up in the stock. Insider purchases have amounted to more than 350,000 shares over the past six months.
  3. Analysts expect revenue gains of ~90% CAGR over the next two fiscal years. Operating cash flow has more than tripled since the close of FY2011.
  4. The mean analyst price target of the 10 analysts that cover the stock is $8.75 a share. The shares were initiated as a "Buy" at Canaccord Genuity in the first quarter.

Disclosure: I am long SYRG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.