Many analysts are calling for higher oil prices (one sample includes this article on oil price forecasts for 2011). It seems that prices are currently having a difficult time popping back into the triple digits per barrel and not everyone has a bullish sentiment. If you side with the oil-bull analysts and feel oil will pop this year, which stocks might be worth considering?
We are going to hunt for some decent value oil stocks with the following scan:
- Analyst recommendation of buy or better
- Lower price-to-book ratios
- PEG ratios under 1
- Positive EPS growth this year and next year expected
- Oil stocks
Analyzing the Oil Picks
- (OTCPK:CBEH) – China Integrated Energy, Inc.
- (NYSE:HES) – Hess Corporation
- (NYSE:MRO) – Marathon Oil Corporation
- (NYSE:CVX) – Chevron Corp.
- (NYSE:HNR) – Harvest Natural Resources Inc.
- (NYSE:SNP) – China Petroleum and Chemical Corp.
- (NYSE:XEC) – Cimarex Energy Co.
As can be seen by their names, two of these stocks are China plays. What are some of the fundamental features that make these stocks attractive? (You may also be interested in whether value or growth stocks are entering their prime cyclical stage.)
Looking at Some Fundamentals
XEC is first up with some decent valuations. The 5-year PEG is only at 0.73 which may mean bargain buying. The PE is 16 which is far below the industry average of 27. Price to book is at 3.58, but EPS growth for the next 5 years is 22% (but 29% depending on which analyst). The stock has already jumped from $20 in 2009 to more than $100 now. Still, there could be further upside when considering relative valuations, especially compared to its peers.
SNP has the risk associated with China, raising interest rates, and some distrusting of its accounting system. Still with a current PE of 9.53 and a forward PE of 7.38, and 5 year earnings expected at over 40%, this could be worth the risk. Profit margins are in the low single digits though. With EPS growing strongly over the past 2 years and a raised dividend, this oil play looks fairly slick.
HNR has not seen the strong recovery other oil stocks have seen over the past 2 years. Dividends have dropped from years before and earnings are still a long way from previous highs. One source gives 66% annualized earnings expectations over the next 5 years (Yahoo says 50%) which gives this stock a PEG ratio of 0.31 (o/57). Price to book is only 1.43 giving it higher intrinsic value, and institutions own over 60% of this stock. The percent short of 8.5 could give this a healthy boost if oil climbs.
CVX – Chevron is a big cap with 194 billion total. The float is only a fraction of that and institutions hold a lot of shares. Yahoo lists the PEG at 0.83 with a PE of 9.17 and annualized expected earnings to grow at 11%. Keep in mind with all of these stocks that PEG does not include dividend yields, of which Chevron has 3%. We need to use a PEGY ratio for that. CVX is looking to make a new breakout past the $100 range soon.
MRO – A smaller yield of 2.15%, this stock has strong recent growth since the 2009 slumps and strong price momentum.
HES – I like the recent trend of increasing profit margin, relatively low price to book value of 1.67, PEG of 0.86 (negligent dividends), and future growth pegged at 15.1% annually. Short-term forecasts exceed those numbers for next quarter and this year EPS.
CBEH – This stock has seen a tremendous amount of share price lately. The company has diluted shares and further warrants could dilute even more so in the future. Whether its acquisition and growth strategy in biodiesel will pan out is for you to decide. Still, with PE ratios under 5 and a very high % short of over 26%, if this stock does start to go, strap on as it will be burning high octane jet fuel as propulsion. Again, there is nothing saying this will rocket soon.
Do you have other oil picks or a differing view on one of the above stocks? With the high short percentage I fully expect some critical views of CBEH. Differing views on these stocks are most welcome, just remember to keep it polite to be taken seriously.
(PEG and growth expectation values may vary depending on source used.)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.