Many industry analysts assume that oil prices might surge in 2012 as world reserves of oil and gas deplete and demand increases. With world population close to seven billion, it is highly unlikely that this demand will go down anytime soon. Even though an oil price hike should result in higher profits and higher stock prices for many energy companies, risks remain for companies in this sector. This report focuses on the performance of five integrated oil and gas companies that operate internationally and pay big dividends. This analysis also helps the readers by pinpointing the key factors affecting each stock's performance. Please use this research as a starting point for your own due diligence.
Royal Dutch Shell PLC (RDS.A, RDS.B):
From the 52 week’s price range of $58.37 - $78.81, it seems that the stock price of the B class shares of Royal Dutch shell have not been too volatile compared to industry peers. Since the third quarter, this stock’s price has recovered fast, trading recently around $72. In fact, Royal Dutch Shell has strong future plans with a solid strategic alliance with the developing countries that have an increasing demand for energy (like China and India) in the upcoming years.
The dividend yield of this stock is 4.7% and earnings per share are 10.08, although its price to earnings ratio is only 7.22. Shell’s growth is expected to rush forward with its interesting global presence. The recent news of the company getting conditional approval for arctic drilling has raised hope for new findings and at the same time it has added uncertainty to the overall success of the project. In line with many analysts, I would suggest that investors should consider this stock.
YPF Sociedad Anonima Common Stock (YPF):
This stock has a noticeably high dividend payout rate of 10.1% which is one of the highest rates in the industry. Besides, its operating margin is also quite high. Compared to its industry peer BP plc (BP) who has a 7.8% operating margin, YPF has about 16.69% operating margin showing a strong operational performance. Even then, the stock’s price has decreased about 24% in the last year and was selling at a price around $34 this week. The underlying reason is the fears among investors about YPF, as it is from Argentina and the political and economic situation over there is highly unstable. Most of the analysts suggest the investors not to invest in this stock; however, this company can turn into a gold pit if the risk is taken. I will suggest that if anyone owns this stock, they should hold it and if anyone plans to invest in this, should wait as the market price might fall more.
Sasol Ltd. American Depositary (SSL):
This Company has a huge amount of liquid assets as shown from its current ratio of 2.19. This stock seems to be in a quite stable position with such strong cash position and also due to its low price to earnings ratio of 11.48. Its dividend yield so far is 5.50%, a very high rate compared to most of the industry peers. SSL was selling in New York Stock Exchange at a price near $46 lately. I believe the company has a huge potential for a long term buy, therefore the investors might look for suitable call options. However, the industry analysts suggest holding this stock, unless it reaches its expected value of about $49 a stock.
ENI S.p.A. Common Stock (E):
Due to the political instability in Libya and the fear of reduced earnings in the third quarter as the production was halted in Libya, the Italian Integrated oil company E had a sharp decline in its price performance in that quarter. However, E had recovered through a significant price appreciation after the Libyan political situation started to settle down. Compared to the industry’s earnings per share of 2.10, E is quite better off as it has earnings per share value of 4.41. Besides, its price to earnings ratio of 8.9 as compared to the average 11.4 in the industry shows that the company is quite in line with the industry. In addition to all these, this stock has a high dividend yield of 5.2%, very close to what its industry peer Total (TOT) has (5.8%). With E’S production rebound in Libya and with the increasing oil price during the winter season it should eventually turn out to be a lucrative choice for the investors for a short to medium term.
BP plc (BP)
As the energy price had been increasing in the past few months, the market price of this stock has been surging upwards too. BP was selling at around $ 450 during the last week that resulted in a price to earnings ratio of about 370, which is extremely high compared to the immediate industry. The levered free cash flow of 5.92 accomplished by BP till this month shows the financial strength of the company, which can be further understood by a solid current ratio of 1.15. However, its debt to equity ratio of 41.06 is quite high compared to its industry peer Exxon Mobil Corporation (XOM) that has a ratio of only 10%. However, if the energy industry does not move ahead as it is expected in the next few years, this debt can put BP.L into trouble. Therefore, investors looking for a long term secured investment options might consider other companies with less debt and more payout yield. However, the short term aspect of investing in BP might be a good choice for an investor who wants to diversify his portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.