The oil and gas industry is a fun sector to watch. The stocks behave a lot like utility companies - they tend to offer good dividends and consistent growth. They also share a third characteristic in the way they grow. Oil and gas stocks, like utility stocks, tend to grow through acquisition. The trend began with T. Boone Pickens and his BP Capital. He was one of the first independent oilmen to grow his company by acquisition.
With Pickens in mind, I went through the stock screener at finviz.com and identified five companies from the oil and gas equipment and services industry that are priced to buy and could be good takeover targets for Devon Energy (DVN), Exxon (XOM), Chevron (CVX), Hess Corporation (HES) or Schlumberger Limited (SLB). These companies are looking for acquisitions and have the cash to make them right now. Each of buy-out candidates companies on my list have a forward price to earnings ratio around 15 or less, a market cap under $4 billion and analyst recommendations of 1.0, making them good investments for investors or solid takeover targets.
Bolt Technology Corp (BOLT) is a company that develops, manufactures and sells marine seismic data acquisition equipment and underwater remotely operated robotic vehicles. The company's operations are divided into four segments - Seismic Energy Sources, Underwater Cables and Connectors, Seismic Energy Source Controllers, and Underwater Robotic Vehicles. It has a market cap of just $97.90 million, so it would be an easy buy. And, considering it is priced at 12.78 times its forward earnings, it is priced to buy - be it as an investor or as a company looking for its unique technology. BOLT is trading at less than $12, with a one-year target estimate of $16.00 - an increase of over 40%. CVX in particular is looking to expand its deepwater investment and has earmarked $32.7 billion to do so in 2012.
C&J Energy Services Inc (CJES) is a company that provides hydraulic fracturing, coiled tubing, and pressure pumping services for oil and gas exploration and production companies. For companies like DVN, XOM, CVX, HES or SLB could benefit from acquiring CJES. After all, why outsource when you can acquire? CJES has a market cap of just $1.10 billion and is trading at just 6.67 times its forward earnings. CJES is trading at roughly $23 with a one-year target estimate of $33.33. For investors, I recommend buying CJES after further due diligence. The company is just coming on the radar. Its average volume over the last three months is 896 million, but its trading volume lately is closer to 3.1 million.
Oil States International Inc (OIS) provides work force accommodation services for oil and gas exploration and production companies staff members working in remote locations. It also designs and manufactures flexible bearings and connector products as well as pipeline products and testing products. OIS is the largest of the companies on my list with a market cap of $3.78 billion but it is priced right, at just 10.44 times its future earnings. Analysts expect good things from this company - it is trading under $77 a share but expected to push past $95 a share within the next year.
Saratoga Resources Inc (SARA) develops crude oil and natural gas properties in the U.S. It has over 31,000 net acres in Louisiana with probable reserves of 10.5 million barrels of crude oil equivalent consisting of 38.0 billion cubic feet of natural gas and 4.2 million barrels of crude oil. With reserves that large and a market cap of just $117.61 million, SARA may be trading at 15.63 times its forward earnings but it is still an absolute bargain. It has an incredibly high beta of over 3 but over the last 52 weeks, the stock has gone up 169.78%. DVN has been on an aggressive acreage campaign so SARA could be on their radar. XOM has been buying exploration blocks as well and SARA is priced just as low as its recent acquisitions. SARA is trading at roughly $6 a share and is expected to hit $8 a share in the next year.
Synergy Resources Corp (SYRG) acquires and develops oil and natural gas properties. Right now, its purchases are centered in northeast Colorado and it has comparatively huge reserves compared to SARA. Its estimated net proved oil and gas reserves include 2,069.7 million barrels of oil and condensate, and 14.3 billion cubic feet of natural gas. All in all, SYRG has 95 wells and an ownership interest in 103 wells. It is trading at roughly $3.50 a share with a one-year target estimate of around $6.00 a share. It has a similar profile to SARA - a low market cap ($124.18M in this case) and attractive upside. Only, in this case, SARA is trading at just 4.47 times its forward earnings, making it a bargain by any estimation. For the same reasons as SARA, DVN or XOM could be buyers of SYRG.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.