Oil and gas companies should play a part in any portfolio. There are numerous companies to choose from, and they cover a wide spectrum of risk tolerance. The companies also cover a wide area of stock types, from dividend-rich income stocks to risk-intensive growth stocks. In this article, I examine five stocks and supply detailed insight into where each stock will fit into a well balanced portfolio. I based my research on these five stocks because they are all capitalizing on the current economic climate of the oil and gas sector.
Chesapeake Energy Corporation (CHK): Chesapeake Energy Corporation has been in a well established downward trend over the past year, that has brought the stock from $34 per share down to the $20 to $22 range it is in today. The company pays out a dividend of $0.35 per share that brings in a dividend yield of 1.6% at the stock's current price. The payout ratio on the stock is 17%, which is below the industry average of 26%. Chesapeake Energy Corporation currently has a PEG ratio of .71, which is a cheap compared to its nearest competitor, ConocoPhillips (COP) with its PEG ratio of 1.98, and cheaper in comparison to the industry average of .84.
Headquartered in Oklahoma City, Oklahoma, and established in 1989, Chesapeake Energy is one of the largest independent natural gas companies in the United States. The company only operates in the United States and only has onshore operations. Furthermore, the company concentrates its assets to just a few geographic locations. This may seem counter-intuitive from an expansion stand point, but the company gains an in depth knowledge of the geological aspects of these areas and uses this knowledge to boost productivity. This has paid off well, in my opinion, because the company has had a 99% well drilling success rate over the past ten years, and its current inventory of leaseholds represent another ten years (or more) of inventory for drilling projects.
Anadarko Petroleum Corporation (APC): Anadarko Petroleum Corporation has been range-bound over the past year, pretty much between $60 and $80 per share, but has broken out of this range over the past few days and is hitting new 52 week highs. In addition to this capital appreciation, the company pays out a dividend of $0.36 per share that brings in a dividend yield of 4% at the stock's current price. The company has not produced a profit over the trailing twelve months, and has been paying its dividend through either its debt or retained earnings -- this is not a sustainable situation, in my opinion. Anadarko Petroleum Corporation currently has a PEG ratio of 1.21, which is slightly cheaper than its nearest competitor, BP p.l.c. (BP), and its PEG ratio of 1.88 but more expensive than the industry average of .84.
The company is based in The Woodlands, Texas, where it was incorporated in 1959. Anadarko Petroleum Corporation explores for and produces oil and natural gas in the United States, Gulf of Mexico, and Algeria. The company also has non-operational joint ventures in the production of industrial mineral properties and investment interests in coal and natural soda ash. I think a turnaround may be in play for the company as its losses for 2011 were mostly due to a $3.9 billion settlement it reached with BP in relation to the Deepwater Horizon debacle. The company has also posted growing revenues in its latest earnings report.
Apache Corporation (APA): Apache Corporation is currently coming out of a trough that brought it to its 52-week low of $73.04 per share in October of 2011. The stock just crossed the $100 threshold and has momentum behind it. In addition to this capital appreciation the company pays out a dividend of $0.60 per share that brings in a dividend yield of .6% at the stock's current price. The payout ratio on the stock is 6%, which is well below the industry average of 26%. The company currently has a PEG ratio of .90, which is much cheaper than its nearest competitor, Exxon Mobil Corporation (XOM), with its PEG ratio of 1.40, but slightly more expensive than the industry average of .84.
Apache Corporation is headquartered in Houston, Texas, and was founded in 1954. The company is engaged in the exploration and production of natural gas, crude oil, and natural gas liquids on the Gulf Coast, Texas and the Gulf of Mexico. Apache Corporation also has international operations in Canada, Argentina and Egypt, with offshore operations in Australia and the United Kingdom in the North Sea. In my opinion, the company stands to benefit in the short term from its diversification and international operations, in particular its offshore projects. The company is already showing improvements in this respect and had the confidence to raise its dividend 13% for this quarter.
SandRidge Energy Inc. (SD): SandRidge Energy has been range-bound over the past year between $13 and $5 per share, but has been trading in the lower half of that range for the past six months. The company currently has a PEG ratio of -12.98, which is extremely cheap compared to its nearest rival, ConocoPhillips, with its PEG ratio of 1.98, and cheaper in comparison to the industry average of .84.
Based in Oklahoma City, Oklahoma, SandRidge Energy Inc. is an independent natural gas and oil company that operates only in the United States. The company explores for and produces natural gas and oil primarily in the Permian Basin, western Texas, New Mexico, Oklahoma, Arkansas, Louisiana, and Kentucky. SandRidge Energy also provides oil field services such as roustabout services, road construction, trucking and supplying drilling rigs. In addition to this, the company operates natural gas treatment facilities and markets its natural gas to large-scale clients.
The company has experienced a slowdown over the last few years as its customers have cut back on production due to the downturn in the economy and the subsequent drop in demand. In my opinion, short sellers have driven the stock down to oversold conditions, and with a turnaround in the market at hand a short squeeze could be in the making. The company is also making plans now for the economic expansion to resume.
EOG Resources (EOG): EOG Resources is currently coming out of a trough that brought it to its 52-week low of $66.81 per share in October of 2011. The stock just crossed the $100 threshold and has momentum behind it. The company currently has a PEG ratio of .45, which is much cheaper than its nearest competitor, Apache Corporation, with its PEG ratio of .90, and cheaper in comparison to the industry average of .84.
EOG Resources was incorporated in Houston, Texas, in 1985 and today has operations in China, Canada, the United Kingdom as well as Trinidad and Tobago. The company explores for, produces and markets natural gas and crude oil. EOG Resources holds some of the most promising and productive areas for natural gas in the Barnett Shale region with holdings of about 610,000 acres.
The company is renowned for its policy of avoiding acquisitions and developing its existing operations to their fullest extent. This has historically kept the company's costs low and its operating margins high. In my opinion, this low cost mentality and the company's expertise in extracting gas from unconventional resources will only improve the company's profit margins as demand for natural gas increases.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.