By Justin Cahoon
These are six buy or, at least, watch closely to-buy-soon stocks. China and India are demanding an enormous amount of resources for growth and these six companies are benefiting from the increased production demand. Nuclear power took a hit when Japan was struck with natural disasters. Coal, petroleum and natural gas companies are strong investments to add to anyone’s portfolio:
Chevron Corporation (CVX) was facing a large pollution lawsuit in the first couple months of this year. It looks like the mess is finally being cleaned up and fortunately in Chevron's favor. This should take care of some of the bad PR that came along with the initial case. In Chevron’s 2010 highlights press release published April 25, 2011, Chevron highlighted improvements to refineries and the continuation of current projects.
Chevron has a market cap of 196.22 billion and a P/E ratio of 8.53 according to Mergent Online. Like Exxon Mobil Corp. (XOM), Chevron looks like it has room for growth compared to its competitors. Chevron has increased dividends since its merger with Unocal Corporation in 2005. Chevron has a dividend yield of 3.01% and a payout ratio of 26%.
Chevron has outperformed the S&P 500 since early this year. The closing price on August 5th was $97.61. Chevron has a history of performing well for shareholders, but the company also has a history of pollution and court troubles. I would currently hold on Chevron and keep my eye on the energy giant for a buy opportunity in the near future.
Billton Ltd. (BHP) has seen some difficulties in expansion due to the current strength of the Aussie dollar. This has not concerned the company too much, though. Billton Ltd. has an effective management team producing an ROA of 17.94% and an ROE of 34.43% according to Yahoo Finance. These numbers are impressive in comparison to competitors with similar market caps. Billton Ltd. has a market cap of 45.88 billion.
Billton has a beta of 1.51, indicating high volatility. In this case, this high beta is good. Billton has a PEG ratio of 0.79. The company has a lot of room for growth and I think the common stock is undervalued at Friday’s closing price of $79.14. Over the last year Billton Ltd. has outperformed the S&P 500 and the current price is a bargain. The 2.3% dividend yield is nice too. Dividends have consistently been raised since November, 2002.
Cloud Peak Energy Incorporated (CLD) is a “key thermal coal player…” and is a solid investment for those interested in adding diversity to their portfolio from the coal industry. China and India continue to thrive on coal and the recent damage to Japan’s nuclear plants make a promising investment for those investors looking at the coal industry. Cloud Peak Energy successfully bid on two mines combining to produce an estimated 407 million tons of coal.
Cloud Peak Energy has a market cap of 1.17 billion and a P/E ratio of 9.35; lower than most of its competition. I think the company has made some great decisions in recognizing an increase in demand for coal over the next couple-few years and has acquired the necessary resources to meet the needs of China and India. Cloud Peak Energy has also outperformed the S&P 500 for the last year. I recommend going long Cloud Peak Energy at current market price ($19.45). The stock is undervalued.
PetroChina Co. Ltd. (PTR) is one of China’s largest companies. It is involved in all steps of production for natural gas and petroleum. PetroChina is benefiting from China’s rapid growth and the growth of the company will continue. PetroChina recently implemented more automation to their “retail operations” with an IT upgrade. PetroChina is planning ahead for rapid growth.
According to Yahoo Finance, PetroChina has a fairly low beta of 1.09, a dividend yield of 3.5% and a payout ratio of 41%. The low beta offers a predictable investment. PetroChina is a promising buy. The company does not show signs of slowing down (in growth) and the closing price on August 5th of $132.53, is a bargain. The current stock is undervalued and I would recommend a buy at that price based on China’s continued growth and need for resources.
Pioneer Southwest Energy Partners L.P. (PSE) had a 10.92% 52-week change which was about 4% above that of the S&P 500. Pioneer Southwest Energy Partners has an effective management team with an ROE of 43.03% and ROA of 12.69%. PSE has a market cap of 938.09M. Pioneer’s low beta of 0.38 makes for a predictable market. Pioneer has a large dividend yield of 7.13%.
From a technical standpoint the company reached support at just above $26.00, which it hit in mid-May and mid-June. Until a sharp decline to the $26.00 support in mid-May the company was in a strong uptrend for the last two years. The five day chart shows a double-bottom that formed with a trough on the August 4th and another on the 5th. Bears were able to take price action to local support, but bulls fought back and the price will likely continue in an uptrend looking at the 3 month, 6 month and 1 year charts.
Exxon Mobil Corporation (XOM) recently announced the development of wells off the coast of Indonesia. The construction period will take three years but will output up to 165,000 barrels per day. Exxon has a strong dividend payout and a decent yield of 25% and 2.5% respectively.
Exxon Mobil's site says that “dividend payments to shareholders have grown at an average annual rate of 5.7% over the last 27 years.” Exxon has a fairly low P/E ratio of 9.83 according to Mergent Online, which places Exxon on the lower end of the P/E ratios against competitors; Exxon is between Marathon Oil Corp. (MRO) at 9.84 and Chevron Corporation (CVX) at 8.52. I think with the big announcement of the developments in Indonesia Exxon will grow and key financial stats confirm this. The consistent dividend increases, payouts and an effective management (ROA of 10.38% and ROE of 25.97%) make Exxon a nice buy company. Exxon closed august 5th at $74.82 after a strong downtrend that started July 22nd (correlating strongly to the S&P 500). Current price is undervalued.