The strong upward movement in the price of crude oil has many investors wondering if there are good buys in the sector. These shifts are based on continually increasing demand, which is causing analysts to raise forecasts to $105 for 2012. To determine the strongest players requires examining Sandridge Energy (NYSE:SD), Nabors Industries (NYSE:NBR), Hercules Offshore (NASDAQ:HERO), Kodiak Oil & Gas (NYSE:KOG) and Patterson UTI Energy (NASDAQ:PTEN). Therefore, use this analysis as a starting point for future research.
Sandridge Energy trades at a forward price earnings ratio of 99.88. The balance sheet includes revenues of $1.33 billion, $325.44 million in cash and $2.83 billion in debt. During the past year, the earnings of the firm have been consistently rising from -$.07 to $.01. However, the price of the stock has been trading below the 200 day moving average of $8.93 (which is bearish). The aforementioned is in response to concerns about the firm's production numbers in the Mississippian project. These are a series of oil fields owned by the company in Western Kansas and Northern Oklahoma. The problem is that the firm increased debt dramatically to drill in the area, and the returns for the company have been lower than expected. These factors have caused investors to be cautious about purchasing shares (leading to volume). As a result, Sandridge Energy is a company to avoid (which is based on high valuation, debt levels and low revenues). At the same time, the concerns about the Mississippian project need to be clarified.
Nabors Industries trades at forward price earnings ratio of 7.60. The balance sheet includes revenues of $5.68 billion, $395.32 million in cash and $4.36 billion in debt. During the past year, the earnings of the firm have been volatile, staying in a range of $.44 to $.29. These issues have caused the price of the stock to test the 52 week low of $11.05. Since this time, shares have been trading between $16.00 and $20.00. The recent movements are below the 200 day moving average, and that is a bearish indicator. As a result, these numbers are showing that investors should be avoiding Nabors Industries (based on the unstable earnings and negative momentum). Until the earnings begin to increase beyond $.44 per share, the stock will continue to have selling pressure.
Hercules Offshore has no forward price earnings ratio. The balance sheet includes $689.98 million in revenues, $127.27 million in cash and $855.77 million in debt. During the past year, the earnings have been decreasing, going from -$.03 to -$.12. The aforementioned has caused the price of the stock to trade below the 200 day moving average of $4.48 (which is bearish to neutral). The volume has been light over the last several months. It is at this point that shares have traded between $3.20 and $4.70. These elements are showing that Hercules Offshore should be avoided (based on a lack of fundamentals, high debt, poor earnings and momentum). The combination of these factors could push shares towards the 52 week low of $2.25.
Kodiak Oil & Gas
Kodiak Oil & Gas trades at forward price earnings ratio of 9.52. The balance sheet includes $76.00 million in revenues, $78.64 million in cash and $55.00 million in debt. During the past year, the earnings have been steadily increasing, ranging from $.00 to $.06. These numbers caused the price of the stock to trade above the 200 day moving average (which is considered to be bullish). However, the volume has been light and the stock has been encountering resistance at $10.00 per share (which is an all-time high). What is propelling the price higher is the expansion of fields in North Dakota, Southern Wyoming and Northern Colorado. These locations contain large amounts of oil and natural gas reserves. The total acreage of land that the company owns is estimated to have an approximate land value of $2 billion. These are above the existing revenues, debt and cash combined. Recently, the firm has been concentrating on extracting oil and gas from these areas (this is causing the price of the stock to trade up). These elements are illustrating how Kodiak Oil & Gas is a good buy (based on the low valuation, good balance sheet, rising earnings per share and strong momentum). However, the volume has been low and the stock is trading near an all-time high. As a result, investors should be cautious about purchasing the stock over the near term; prudent investors must wait for the stock to pull back and then purchase shares. At that point, the stock will have good valuations and attractive momentum.
Patterson UTI Energy
Paterson UTI Energy trades at a forward price earnings ratio of 6.91. The balance sheet includes revenues of $2.35 billion, cash of $10.65 million and debt of $410.80 million. During the last year, the earnings per share have been increasing from $.37 to $.55. However, despite these better than expected earnings, the stock has been trading down. The aforementioned is based on concerns that analysts have about future growth for the sector and the ability to receive high levels of short term working capital (especially if there is a recession in the US or Europe). This has caused shares to trade below the 200 day moving average of $24.55 (which is bearish). In October, these concerns caused the price of the stock to decline to the 52 week low of $15.06. Since this time, shares have been in trading range between $18.00 and $24.00. These figures are illustrating how investors should watch the company (based on the strong fundamentals and earnings). The weak momentum of the stock is highlighting concerns about the sector. In the future, this means that investors should watch the next earnings report. If the bottom line numbers are continuing to increase, this could cause the price of the stock to trade higher. Once this happens, there is the possibility that Patterson UTI Energy could take out the resistance levels.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.