The oil and gas sector has shown considerable signs of improvement after experiencing a brief dip in the last quarter of 2011. This sector is suggested to show a positive trend , which will remain on a long term range. But the fact that the oil and gas sector suffers from volatility should not be discarded. The underlying stocks, in my opinion, are in optimal position for 2012 with a medium to long term perspective. These stocks are prominent in the oil and gas sector, and show strong future growth prospects both through fundamentals and through acquisitions.
Marathon Oil Corp. (MRO) is one of the prominent business leaders in the oil and gas sector, engaged in exploration, refining, production, transportation, marketing and operations pertaining to integrated gas. The current market price of Marathon Oil Corp. is around $32.80, which is approximately 80% short of its fair value range. With a single digit trailing 12-month price earnings ratio of around 8.2, its price depicts a mere 6.7 multiple of free cash flow and non-significant debt issues.
Thus I think a healthy margin of safety could be associated with the company's payment of dividends. Although the company's stock lost around 40% of its market capitalization in the third-quarter of 2011, the stock has recovered strongly since then. The stock is currently above 60% of its 52 week low. Also, due to the volatility that exists in the oil and gas sector, the oil stocks are prone to be under-valued. Therefore, one cannot conclude on the massive selling of the stock, as seen in the third quarter of 2011, to be related to the company's fundamentals or to its business. In fact, the company has repurchased 12 million shares in the third quarter of 2011. Moreover, as Marathon Oil Corp. Is currently priced at approximately 15% below its 52 week high, there prevails, a lot of scope for the company to regain and even move further. In my opinion, the market outlook of oil and gas sector looks lucrative, wherein one could see a rise in oil prices as well as an increase in its demand for consumption. I would recommend one to purchase the stock at the current market price, with a long term perspective.
Apache Corporation (APA) has current market price of around $101.10. The company actively operates in seven regions around the globe, namely Central USA, Gulf Coast (onshore and offshore), Egypt, Canada, Australia, Australia and the North Sea, in the development, production and exploration of oil and gas. The company has recently crossed its 100 day moving average, depicting it strength on technical front. Fundamentally, the company has price earnings to growth of around $ 0.96, return on equity of around $16.80. Along with good technical uptrend coupled with descent fundamentals, the stock is expected to profit in 2012 from its North American production. The company currently operates 24 rigs, and owns 1.5 million acres in the Permian Basin. The company is currently priced at 2.9 times of its Earnings before Interest, Taxes, Depreciation and Amortization ratio. Its 2012 earnings is projected at $12.31. However, the most significant attribute of this stock does not only lie in the current assets that it holds, but in its prospective owning of 254,000 net acres through acquisition of Cordillera Energy Partners III LLC, having operations in Texas and Oklahoma. Owning liquid-rich acreage in the Anadarko basin is definitely positive news for the future prospects of Apache Corporation. With Oil and gas sector depicting a positive outlook for 2012, I would recommend to purchase this stock at its current market price, keeping a long term perspective.
Chevron Corporation (CVX) is one of the largest oil and gas companies in the world, involved in oil exploration, refining, trading, marketing, power, lubricants and many more other activities in the energy sector. Chevron Corporation is currently quoting at around $102.90. The company has strong fundamentals, depicting seven year revenue growth by 7 % , seven year Earnings Per Share Growth by 11.4%, a Dividend yield at 3.03% and a seven year Dividend Growth of 10.5%. Total Debt to Equity is only $0.8. Its Debt to total Capital stands lower than 45%, despite of paying its investors increased dividends. However, the stock has a low Price Earnings ratio of approximately $ 8. This mega cap company has consistently been increasing its dividend payout for the last 24 years. With an equally strong balance sheet, I would certainly recommend buying Chevron Corporation at the current market value. In my opinion, Chevron Corporation is a long term stock, irrespective of volatility in oil prices and the risks of litigation.
Devon Energy Corporation (DVN) has its business primarily in the development, production and exploration of natural oil and gas. At its market value of around $63.91, I would recommend buying Devon Energy Corporation at its current levels. My recommendation finds its base in my optimism to foresee oil and gas sector performing at its best levels in early 2013. In my opinion, lighter restrictions and regulations on the oil sector, would enable the constituent companies of the sector to perform much better from the current levels. A strong 18% year on year earnings per share growth was depicted by Devon Energy Corporation in its third quarter performance. An increase of 26% was depicted in the company's continuing operations cash flow. Devon Energy Corporation's joint venture with Chinese company SIPC, wherein SIPC will take 1/3 interest in the New Venture properties of Devon Energy Corporation, is the major catalyst for prospective upswing in the stock value of Devon Energy Corporation. Moreover, its joint-venture with SIPC instills certainty to investment projects of Devon Energy Corporation, thereby further garnering confidence in its investors. An improved outlook has enabled the company to tap certain unconventional shale plays. On the whole, I would recommend buying Devon Energy Corporation at current levels, for medium to long term range.
EOG Resources, Inc. (EOG) is engaged in the development, production, and exploration of natural oil and gas. With the current market price at around$106.50, EOG Resources, Inc. depicts return on Assets of 0.81% and a return on Equity of 1.59%. The company's last 5 years average of the minimum forward price to earnings multiples is 29.08, whereas its average price to earnings multiples is 44.08. EOG Resources, Inc. has shown an increase of 7.5% in 2012. I perceive the market outlook for oil and gas sector to be very optimistic for 2012 as well as 2013. Moreover, the company's valuation stands at approximately $434, using the minimum earnings multiples. Considering the stock growth over the next 5 years to be around 54%, in my opinion, EOG Resources, Inc. is a good buying option for a medium to long term range.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.