Investors may not need to worry about the world's supply of oil and gas for now. Shale gas reserves are up by 10% compared to previous estimates, according to the US Energy Information Administration (EIA). The US ranks second in the amount of shale oil that is technically recoverable, estimated to be 58B barrels, and fourth when it comes to shale gas, with an estimated 665 trillion cubic feet potentially available. And overall oil reserves across the globe are up 11%, according EIA research.
So what's a good way for investors to make a play in oil and gas? We began by screening the industry for dividend stocks paying yields between 1-5%, and with sustainable payout ratios below 50%. We excluded stocks with yields above 5% so that we could avoid the riskier high-yield stocks.
Then we screened our list of stocks for those stocks with 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.
We were left with two companies on our list, one operating in support of offshore energy, Tidewater Inc. (TDW), and one supplying components for gas and oil wells (including shale), CARBO Ceramics Inc. (CRR). However, investors should take note that TDW is performing much better than CRR based on returns over the last week, month and quarter.
For an interactive version of this chart, click on the image below. Average analyst ratings sourced from Zacks Investment Research.
Do you see income opportunities among these oil and gas stocks? Use the list below as a starting point for your own analysis.
1. Tidewater Inc. : Provides supply vessels and marine support services to the offshore energy industry.
- Market cap at $2.81B, most recent closing price at $56.86
- Dividend: 1.76%
- Payout ratio: 33.01%
- Performance over the last week: 3.21%
- Performance over the last month: 3.21%
- Performance over the last quarter: 22.17%
- Net institutional purchases in the current quarter at 5.2M shares, which represents about 10.68% of the company's float of 48.71M shares. The top holders of the stock are Shapiro Capital Management Company, Inc. (5.55%) and Franklin Resources, Inc (5.49%).
TDW has recorded great gains over the last month, when compared to its competitors. The stock returned 2.64% since 5/10/13, better than Teekay Offshore Partners LP (TOO) and Kirby Corporation (KEX), which returned 2.10% and -0.87% during the same holding period.
TDW has a higher than average projected earnings growth rate over the next 5 years (45.60%). This is higher than the likes of TOO (projected EPS growth over next 5 years at 8.0%) and Seacor Holdings Inc. (CKH) (projected EPS growth over next 5 years at 32.00%).
The company's earnings for the most recent quarter came in above analyst predictions. In the first quarter of 2013, net earnings were $46.6M ($0.95 per share) compared to the same period last year of $33.6M ($0.44 per share). The average estimate from 18 analysts was earnings per share of $0.61. Revenue also grew, from $289.3M last year to $328.3M during this quarter.
2. CARBO Ceramics Inc. : Manufactures and supplies ceramic proppants primarily used in the hydraulic fracturing of natural gas and oil wells in the United States and internationally.
- Market cap at $1.57B, most recent closing price at $67.84
- Dividend: 1.59%
- Payout ratio: 32.90%
- Performance over the last week: 2.94%
- Performance over the last month: -4.03%
- Performance over the last quarter: -24.33%
- Net institutional purchases in the current quarter at 1.3M shares, which represents about 6.57% of the company's float of 19.79M shares. The top holders of the stock are Neuberger Berman Group, LLC (7.74%) and Brown Capital Management, Inc. (6.03%).
CRR has returned -3.38% since 5/10/13, and is currently underperforming compared to stocks in its industry. The stock is falling behind companies like National Oilwell Varco, Inc. (NOV) and Halliburton Company (HAL), which returned 2.90% and -0.23% during the same time period.
The company's earnings growth looks low but still relatively average compared to industry peers, with EPS growing by -18.40% over the last year. This is considerably weaker than competitors like U.S. Silica Holdings, Inc. (SLCA) (EPS growth over the last year at 162.78%) and NOV (EPS growth over the last year at 24.05%), but closer to HAL (EPS growth over the last year at -14.08%) and better than Harsco Corporation (HSC) (EPS growth over the last year at -2588.92%).
However, CCr is well placed to take advantage of the surge in shale deposits. The company's product CARBOHYDROPROP (CHP), a lightweight ceramic proppant competitively priced with high-strength and superior thermal stability, is already being used in the extraction of Niobrara shale from the Piceance basin in the northwest US.
*Institutional data sourced from Fidelity, all other data sourced from Finviz.