Oil prices are currently hovering around the $100 per barrel level, but that might not last for long. A number of factors could be converging in the next few months that could create a big jump in oil prices. A recent Reuters article spells out the potential for much higher oil prices, stating:
Iran warned the West on Sunday any move to block its oil exports would more than double crude prices with devastating consequences on a fragile global economy. "As soon as such an issue is raised seriously the oil price would soar to above $250 a barrel," Foreign Ministry spokesman Ramin Mehmanparast said in a newspaper interview."
The United States already has a ban on oil imports from Iran, but now Europe is considering a ban as well over the pursuit of their nuclear program. The situation with Iran could easily lead to a super-spike in oil prices sometime in 2012. However, even if that concern fades, the price of oil is likely to continue rising as debt-strapped countries around the world set loose monetary policies and print money. Oil is a hard asset that can't be printed by central bankers and it tends to do well in times of inflation. The stocks below make sense to consider because they are undervalued, offer some dividend income, and have high potential for gains in 2012:
Sunoco, Inc. (SUN) is a leading refiner of petroleum products. The past couple of years have been tough for refiners, but margins are expected to improve. This stock has recently dipped to about $35, so I would wait for weakness before buying. Some believe that Sunoco is a candidate for either a takeover or a spin-off of certain assets.
Here are some key points for SUN:
- Current share price: $38.10
- The 52 week range is $27.76 to $46.98
- Earnings estimates for 2011: 20 cents per share
- Earnings estimates for 2012: $1.90 per share
- Annual dividend: 60 cents per share, which yields 1.6%
Valero Energy Corp. (VLO) is a leading refiner of petroleum products. Just as with Sunoco, the outlook for margins is expected to improve. This stock looks deeply undervalued. A well known energy industry analyst at Oppenheimer believes earnings estimates are too low for Valero, and that the shares have 60% upside.
Here are some key points for VLO:
- Current share price: $20.36
- The 52 week range is $16.40 to $31.32.
- Earnings estimates for 2011: $4.71 per share
- Earnings estimates for 2012: $4.04 per share
- Annual dividend: 60 cents per share, which yields 2.7%
Frontline Ltd. (FRO) owns and operates tankers that transport oil, coal and other materials. This stock has been absolutely crushed over the past few months and is trading near 52 week lows. The shipping stocks are very volatile, and this company is too risky for a major position, but a small one might make sense now. If the global economy is in better shape than expected, this stock could run back up over $20 in the next few years. Since this stock has been punished in 2011, it could also see a rebound when tax-loss selling ends in January.
Here are some key points for FRO:
- Current share price: $3.40
- The 52 week range is $2.52 to $27.76.
- Earnings estimates for 2011: a loss of about $1.54 per share
- Earnings estimates for 2012: a loss of about $1.67
- per share Annual dividend: 8 cents per share, which yields 2.2%
Marathon Oil Corporation (MRO) is a leading oil exploration and production company. This stock was trading around $31 in July and looks like a solid value at current levels. The price to earnings ratio is only about 7, and the dividend is over 2%. Plus, this stock is trading just a few dollars over book value, which is $23.40. I would buy on any dips.
Here are some key points for MRO:
- Current share price: $26.99
- The 52 week range is $19.13 to $54.33.
- Earnings estimates for 2011: $3.53 per share
- Earnings estimates for 2012: $3.45 per share
- Annual dividend: 60 cents per share which yields 2.1%
Chesapeake Energy Corporation (CHK) is one of the leading natural gas companies in the United States. It has interests in the Barnett Shale, the Haynesville and Bossier Shales, the Fayetteville Shale, the Marcellus Shale and the Eagle Ford Shale. Cramer has given this stock a buy rating and thinks this company could become one of the countries top 5 producers. This stock appears undervalued and is trading just barely over book value, which is $20.69.
Here are some key points for CHK:
- Current share price: $22.57
- The 52 week range is $21.11 to $35.95
- Earnings estimates for 2011: $2.85 per share
- Earnings estimates for 2012: $2.45 per share
- Annual dividend: 35 cents per share, which yields 1.6%
Energy Transfer Partners (ETP) provides natural gas pipeline and transportation services, and sells propane in the United States. This stock offers a strong dividend payout and yields over 8%. Over the next 5 years, the dividend alone could give investors gains of about 40%. These shares look attractive for potential price appreciation as well, especially if they trade down to about $39, which is a level the stock hit in October. The company is about to sell the propane division for around $2.9 billion, and that could be a positive event for the stock.
Here are some key points for ETP:
- Current share price: $44.39
- The 52 week range is $38.08 to $55.50
- Earnings estimates for 2011: $1.56 per share
- Earnings estimates for 2012: $2.50 per share
- Annual dividend: $3.58 per share, which yields 8%
Ensco PLC (ESV) is a major offshore oil and gas drilling contractor that operates worldwide with a fleet of 42 jackup rigs, 4 ultra-deepwater semi-submersible rigs, and a barge rig. This stock looks like a solid value now and even more so on any dips. It pays a strong dividend with a yield of 2.9%, and trades for just about 8 times 2012 earnings.
Here are some key points for ESV:
- Current share price: $47.24
- The 52 week range is $37.39 to $60.31
- Earnings estimates for 2011: $3.17 per share
- Earnings estimates for 2012: $5.96 per share
- Annual dividend: $1.40 per share, which yields 2.8%
Data is sourced from Yahoo Finance.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
