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The following is a list of 7 oil related stocks that have seen operating cash flows accelerate faster than net income during the most recent quarter. Since these companies are generating cash at a faster pace, it might offer an interesting starting point for your own analysis...

To create this list, we started with a list of the largest oil stocks by market cap. We then crunched the numbers on their financials, and identified a list of companies that have seen a big jump in their operating cash flow growth relative to net income growth during the most recent quarter. (Note: For this screen, we use the equation Operating Cash Flow = EBIT + Depreciation - Taxes).

Operating cash flow is arguably a better measure of a business's profits than earnings. Given the trends mentioned below, some might think these companies are set for a rally. Do you agree?

Financials data sourced from Google Finance. Industry comps data sourced from Fidelity.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.


1. Denbury Resources Inc. (NYSE:DNR): Independent Oil & Gas Industry. Market cap of $8.32B.

Net Income grew by 8.22% ($29.1M vs. $26.9M y/y), while Operating Cash Flow grew by 77.63% ($142.8M vs. $80.4M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).

Short float at 4.44%, which implies a short ratio of 4.93 days. The stock has gained 44.82% over the last year.

Other Highlights:

- Analysts expect the company to generate higher than normal earnings growth in the future. EPS growth for the next year is projected at 50.00%, higher than the industry average at 25.66%. EPS growth over the next five years projected at 12.53%, vs. the industry average at 10.72%.

- The company's capital spending accelerated by 44.98% over the last five years, much faster than the industry average of 19.66%. At least theoretically, this makes them more competitive over the coming years, since their operational assets are more up-to-date.

- Institutional and mutual fund investors have been net purchasers of the company's shares over the last two quarters, suggesting that the smart money thinks there's more upside to the stock. Institutional investors have been net buyers of 1.8M shares during the most recent quarter, vs. 14.5M net shares purchased in the previous quarter. Mutual fund investors have also been optimistic on the stock. They were net buyers of 17.4M shares during the most recent quarter, vs. 12.9M net shares purchased in the previous quarter.

2. Concho Resources, Inc. (NYSE:CXO): Oil & Gas Drilling & Exploration Industry. Market cap of $9.96B.

Net Income grew by 5.11% ($20.8M vs. $19.8M y/y), while Operating Cash Flow grew by 20.37% ($98.2M vs. $81.6M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).

Short float at 4.1%, which implies a short ratio of 3.54 days. The stock has gained 114.88% over the last year.

Other Highlights:

- It's also worth pointing out that the company has a track record of outperforming its competitors. Over the last five years, EPS grew by 31.95%, higher than the industry average at 1.59%, while revenues grew by 58.2%, outperforming the industry average at 10.67%.

- The company has demonstrated rapid cash flow growth over the last five years, which may lower their risk going forward. Five year average cash flow growth at 71.52%, much higher than the industry average at 8.57%.

- The company outperformed analyst earnings estimates during the most recent quarter, suggesting that the analyst community is underestimating the stock. The company reported earnings per share of $0.77 per share, and exceeded the First Call Consensus of $0.62 (Q3 Earnings on 11/03/10). The company also outperformed analyst estimates over the last year, reporting earnings per share at $1.51, beating the consensus view at $1.32 (based on the estimates of 16 analysts).

3. Continental Resources Inc. (NYSE:CLR): Oil & Gas Drilling & Exploration Industry. Market cap of $10.52B.

Net Income grew by 11.88% ($39.1M vs. $34.9M y/y), while Operating Cash Flow grew by 26.34% ($114.4M vs. $90.5M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).

Short float at 14.16%, which implies a short ratio of 7.08 days. The stock has gained 62.23% over the last year.

Other Highlights:

- When compared to industry competitors, the company reported better than average profit margins during the most recent quarter. Gross margins came in at 77.53%, higher than the industry average at 37.75% (most recent quarter, annualized). Operating margin came in at 35.02%, higher than the industry average at 18.05%, while net profit margin came in at 35.02% vs. the industry average at 18.05%.

4. El Paso Pipeline Partners, L.P. (NYSE:EPB): Oil & Gas Pipelines Industry. Market cap of $6.35B.

Net Income grew by 16.09% ($63.5M vs. $54.7M y/y), while Operating Cash Flow grew by 30.46% ($116.5M vs. $89.3M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).

Short float at 0.47%, which implies a short ratio of 0.6 days. The stock has gained 54.82% over the last year.

Other Highlights:

- Institutional and mutual fund investors have been net purchasers of the company's shares over the last two quarters, suggesting that the smart money thinks there's more upside to the stock. Institutional investors have been net buyers of 13.0M shares during the most recent quarter, vs. 3.9M net shares purchased in the previous quarter. Mutual fund investors have also been optimistic on the stock. They were net buyers of 4.8M shares during the most recent quarter, vs. 1.5M net shares purchased in the previous quarter.

5. Contango Oil & Gas Co. (NYSEMKT:MCF): Independent Oil & Gas Industry. Market cap of $894.03M.

Net Income grew by 40.61% ($18.9M vs. $13.5M y/y), while Operating Cash Flow grew by 52.58% ($34.2M vs. $22.4M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).

Short float at 2.79%, which implies a short ratio of 3.13 days. The stock has gained 13.16% over the last year.

Other Highlights:

- Over the last year, the company has proven itself to be more profitable than its industry competitors. Trailing twelve month (NYSE:TTM) gross margin at 89.72%, higher than the industry average at 36.44%. TTM EBITD margin at 73.51% vs. industry average at 30.54%, while TTM operating margin came in at 49.87%, higher than the industry average at 16.38%. The company also outperformed with its pretax margin, reporting a ratio of 50.12%, higher than the industry average at 15.92%.

6. Buckeye Partners LP (NYSE:BPL): Oil & Gas Pipelines Industry. Market cap of $3.35B.

Net Income grew by 5.65% ($61.2M vs. $57.9M y/y), while Operating Cash Flow grew by 8.38% ($97.8M vs. $90.2M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).

Short float at 0.4%, which implies a short ratio of 0.98 days. The stock has gained 22.17% over the last year.

7. Apco Oil & Gas International Inc. (NASDAQ:APAGF): Independent Oil & Gas Industry. Market cap of $466.92M.

Net Income grew by 4.27% ($6.6M vs. $6.3M y/y), while Operating Cash Flow grew by 4.90% ($7.3M vs. $6.9M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).

Short float at 9.2%, which implies a short ratio of 11.76 days. The stock has gained 210.37% over the last year.

Other Highlights:


- The company's capital spending accelerated by 31.36% over the last five years, much faster than the industry average of 19.66%. At least theoretically, this makes them more competitive over the coming years, since their operational assets are more up-to-date.

- Institutional and mutual fund investors have been net purchasers of the company's shares over the last two quarters, suggesting that the smart money thinks there's more upside to the stock. Institutional investors have been net buyers of 30.9K shares during the most recent quarter, vs. 315.9K net shares purchased in the previous quarter. Mutual fund investors have also been optimistic on the stock. They were net buyers of 5.7K shares during the most recent quarter, vs. 22.5K net shares purchased in the previous quarter.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Seven Oil Stocks With Improving Operating Cash Flow