Seeking Alpha
Long/short equity, tech, banks, oil & gas
Profile| Send Message|
( followers)  

In this article, we will discuss the following energy stocks: Pioneer Natural Resources Co. (NYSE:PXD), Diamond Offshore Drilling, Inc. (NYSE:DO), Noble Corp. (NYSE:NE), Helmerich & Payne Inc. (NYSE:HP), Patterson-UTI Energy Inc. (NASDAQ:PTEN), Atwood Oceanics, Inc. (NYSE:ATW) and Unit Corp. (NYSE:UNT).

Company Reviews

Pioneer Natural Resources Company engages in the exploration and production of oil and gas in the United States and South Africa. The company produces and sells oil, natural gas liquids (NGL), and gas. The company is trading below analyst estimates. Pioneer has a median price target of $101 by 25 brokers and a high target of $162. The last up/downgrade activity was on September 20, 2011, when Deutsche Bank initiated coverage on the company with a Buy rating.

Diamond Offshore Drilling, Inc. operates as an offshore oil and gas drilling contractor worldwide. The company is trading slightly below analysts' estimates. Diamond Offshore has a median price target of $68 by 30 brokers and a high target of $90. The last up/downgrade activity was on June 24, 2011, when FBR Capital upgraded the company from Market Perform to Outperform.

Noble Corporation operates as an offshore drilling contractor for the oil and gas industry worldwide. It is involved in the contract drilling of oil and gas wells. The company is trading below analysts' estimates. Noble has a median price target of $67 by 30 brokers and a high target of $90. The last up/downgrade activity was on September 23, 2011, when Global Hunter Securities upgraded the company from Neutral to Buy.

Helmerich & Payne, Inc. engages in the contract drilling of oil and gas wells. It provides drilling rigs, equipment, personnel, and camps on a contract basis to explore for and develop oil and gas from onshore areas and fixed platforms, tension-leg platforms, and spars in offshore areas. The company is trading below analysts' estimates. Helmerich & Payne has a median price target of $69 by 19 brokers and a high target of $82. The last up/downgrade activity was on April 29, 2011, when Canaccord Genuity downgraded the company from Buy to Hold.

Patterson-UTI Energy, Inc., through its subsidiaries, provides onshore contract drilling services to oil and natural gas operators. The company is trading below analysts' estimates. Patterson-UTI Energy has a median price target of $35 by 22 brokers and a high target of $48. The last up/downgrade activity was on September 23, 2011, when Global Hunter Securities downgraded the company from Buy to Accumulate.

Atwood Oceanics, Inc., an offshore drilling contractor, together with its subsidiaries, engages in the drilling and completion of exploratory and developmental oil and gas wells worldwide. The company is trading below analysts' estimates. Atwood has a median price target of $47 by 15 brokers and a high target of $61. The last up/downgrade activity was on September 23, 2011, when Global Hunter Securities downgraded the company from Buy to Accumulate.

Unit Corporation operates as a contract drilling company. The company operates in three segments: Contract Drilling, Oil and Natural Gas, and Mid-Stream. The company is trading below analysts' estimates. Unit has a median price target of $70 by seven brokers and a high target of $75. The last up/downgrade activity was on January 11, 2011, when Canaccord Genuity initiated coverage on the company with a Buy rating.

Balance sheet

The energy stocks discussed are mid cap or larger, with EPS quarterly growth rates of better than 20% and profit margins above industry average over the trailing twelve months. Additionally, these stocks have great stories and positive catalysts for future growth.

A company's earnings per share is conceivably the most important statistic to understand before investing in a stock. Each time you consider starting a position in a stock, you should prudently scrutinize its earnings information. The reason earnings are so vital to investors is that they tell you about the relative profitability of a company. Earnings per share is defined as the net income of a company divided by the shares of common stock outstanding. With the EPS measure, you are looking at the amount of money left over for shareholders. The value is reported after taxes are subtracted, and we are normalizing those profits by stating them on a per-share basis.

When a company is profitable, and has money to give back to shareholders in the form of earnings, the company has two basic options: First, it can distribute some of the earnings in the form of a stock dividend. Factor this in with the fact that historically, dividend-paying stocks have outperformed non-dividend-paying stocks, and you have a recipe for outstanding returns. After the precipitous drop in the Dow in 2008, the high-dividend-payers were the first to recover. Whatever is not paid out in the form of dividends is placed into the retained earnings, which then become a source of capital that can be used to help support the growth of a company.

Below are two tables with detailed statistics regarding each company’s current summary information and fundamental information.

Click to enlarge images:

Fundamental Statistics

Market backdrop

The S&P 500 (NYSEARCA:SPY) recently rose nearly 4% higher, crossing above the 1250 mark for the first time in over two months. Positive catalysts for the rally are that monetary stimulus is very accommodative, corporations are flush with cash, and we had a major capitulation event in late August. Monthly manufacturing and services reports from the eurozone were mediocre at best, but some were reassured when China reported an increase in manufacturing activity, as measured by the HSBC Manufacturing PMI.

Euro zone leaders struck a deal with private banks and insurers on Thursday for them to accept a 50% loss on holdings of Greek government bonds as part of a plan to lower Greece's debt burden and try to contain the two-year-old euro zone crisis. This bodes well for energy stocks going forward. We posit this is the turning point for the energy sector. The market is clearly at an inflection point. To open a position you must have courage in your convictions; just remember, fortune favors the bold. A market correction provides opportunity to buy great names at a discount price.

Answer this question: How many times has the stock market roared back after a correction? The fact is, every time. If you told someone in 1987 on Black Monday that the Dow would be almost tenfold higher within 20 years’ time, that person would have called you crazy, but you would have been correct. Who is to say how high the market can climb from here?

Consolidation

Global oil and gas energy company shares fell 21% in the third quarter, the worst three months since 2008. Sanford C. Bernstein & Co. and Goldman Sachs Group Inc. have forecast a rush of oil and gas buyouts. The oil and gas industry’s recent horrific collapse has heralded a surge of takeovers in the U.S. oil patch as Asian buyers put enormous amounts of cash to work.

The writing is on the wall, oil and gas companies are currently undervalued. Once the European sovereign debt issues are resolved and the global recovery kicks in, oil and gas companies will return to their high flying nature, I have no doubt.

Disclaimer: This is only the first step in finding winners for your portfolio. Please use this as a starting point for your own due diligence.

Source: 7 Highly Profitable Energy Buys With Substantial Upside