I have recently written that I am looking for a nice rebound in the energy sector over the upcoming year. I have put together a list of companies with market caps between $500M and $1B that have good potential for sector and market outperformance, all for varying reasons. I have also included an Energy sector ETF to cap things off.
1. Basic Energy Services, Inc (BAS) Market Cap: $885M
Basic Energies is a field service company whose operations are managed regionally and is focused on U.S. onshore oil and natural gas producing regions that are located in Texas, New Mexico, Oklahoma, Arkansas, Kansas, Louisiana, Wyoming, North Dakota, Colorado, Utah and Montana. Shares of Basic Energies currently trade at $20.84. The company has generated impressive overall returns, as the share price has more than doubled since the start of 2010. Though the stock has a high P/E, it is somewhat supported by its recently reported 75% year-over-year quarterly revenue growth. The current analyst consensus price target is $27.5 with the rosiest one year target being $40.
2. Heckmann Corporation (HEK) Market Cap: $797M
Heckmann, along with its subsidiaries, is a company that operates in water solutions for the energy development segment. The push for reduction in environmental risk stemming from shale-oil drilling makes the name attractive on multiple levels. Shares of Heckmann are up nearly 36% on the year and the company recently posted a nearly 2,400% year over year growth in quarterly revenue. Despite seemingly high forward P/E of 42.69, the company's involvement in the handling of chemically unsafe water that is produced by fracking makes it an intriguing takeover prospect for 2012, as many larger drilling, exploration and field services companies in the sector may look to exploit the company's assets to gain competitive advantage over their peers. The stock currently trades at $6.83 with the average analyst consensus price target being just $6.95.
3. Contango Oil & Gas Company (MCF) Market Cap: $924M
Contagno's core business is to explore, develop, produce and acquire natural gas and oil properties primarily offshore in the Gulf of Mexico in water-depths of less than 300 feet. Its stock currently trades at $60.18. Shares of Contagno have been pretty flat on the year, but the company has no debt, $137M in cash and impressive free cash flow per share. The company also has strong fundamentals to go with a solid and relatively simple business model that revolves around cost competition and primarily drilling in proven wells.
4. Comstock Resources, Inc. (CRK) Market Cap: $750M
Comstock Resources is a company that is engaged in the acquisition, development, production and exploration of oil and natural gas. As of a year ago, its oil/gas operations were primarily located in East Texas, North Louisiana and South Texas and it owned interests in nearly 1600 producing oil and natural gas wells, while operating 899 of them. The company's consolidated proved oil/natural gas reserve base was 98% natural gas, of which 50% were proved developed, and its properties had proved reserves of 1,051 billions of cubic feet equivalent. Shares of Comstock were given a boost recently, as Oppenheimer improved its rating on the company to outperform from perform and gave it a $30 price target, citing a reason as being Comstock's acquisition in the Permian Basin. According to the company, the recent addition to its stake in the Permian Basin has the potential to produce 900 vertical drilling locations that may produce 178 million barrels of oil equivalent. The company's stock currently trades at $15.75
5. Newpark Resources, Inc. (NR) Market Cap: $861M
Newpark is a company that operates in three business segments: Fluids Systems and Engineering, Mats and Integrated Services and Environmental Services and provides its products and services principally to the oil and gas exploration and production industry in the United States, Europe, North Africa, Brazil, Canada and Mexico. The stock currently trades at $9.44 and is up over 53% on the year. It is a company that has been in existence for 79 years, recently reported year-over-year quarterly earnings growth of 45% and has a forward P/E of just 10.
6. Rex Energy Corporation (REXX) Market Cap: $692M
Rex Energy Corporation is an independent oil and gas company that operates mainly in the Appalachian Basin, where it is focused on the Marcellus Shale drilling projects, and in the Illinois Basin. The company's stock currently trades at $15.60 with an average analyst consensus price target of $18.50, with the high-end analyst projection being $24. It's a bit of a risky speculation play, given its poor debt/cash ratio, negative net income and negative free cash flow, but the short float is near 30% and if the company hits it big next year, REXX has some decent short-squeeze potential.
Energy Sector ETF Bonus: XLE
Energy Select Sector seeks to provide investment results that correspond to the price and yield performance of the Energy Select Sector of the S&P 500 index. Energy companies in the index primarily develop and produce crude oil and natural gas, and provide drilling and other energy-related services. It utilizes a passive or indexing investment approach to attempt to approximate the investment performance of the Index. Its investment advisor is SSgA Funds Management, Inc.
XLE is a no-brainer, given my bullish 2012 outlook on the sector. It pays a decent dividend and has performed quite well since early 2009.
As always, there is no guarantee that any of the above tickers will soar with the eagles next year, but I believe that the potential is there and will be closely watching the ones I currently do not hold for good entry prices.