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Investors picked up the Talisman Energy Inc (NYSE:TLM) book and saw a picture of natural gas on the cover and quickly stuck their nose up in the air and put the book back down. But if they had turned the book around they'd see that Talisman Energy is much more than a natural gas company.

Yes, Talisman Energy is more gassy than Jupiter, Saturn or Uranus, but it is not a pure play on natural gas. If you dig deeper you'll see that about 40% of its production is oil and another 11% is liquid rich natural gas (which sells close to the price of oil). So this natural gas company has over 50% of its production in oil and oil linked liquids.

If we continue to dig, we see that the majority of the oil production comes from Latin America, the North Sea and South East Asia, which means it is sold at Brent Prices (which sell at a $10-11 premium to WTI - West Texas Intermediate Oil). In this low natural gas environment, Talisman has the opportunity to divert its spending to its oil and oil linked liquids exploration portfolio in Latin America, Europe and the U.S. This means that it can increase its oil exposure and lessen its natural gas exposure until natural gas prices rebound.

At $14.23, Talisman is trading at a significant discount to its NAV (Net Asset Value), which is close to $22. Also, in 2012, cash flow per share is estimated at $3.55. That means Talisman is trading at 3-4 times cash flow, which is a tremendously cheap valuation. Obviously, the market has wrongly painted Talisman as a natural gas company, but this gives us a fantastic opportunity to buy this company at a dirt-cheap valuation and all it took was a little digging.

I also want you keep in mind that eventually natural gas prices will rebound and Talisman can quickly increase its natural gas production to take advantage of this. So in the short term we can see Talisman rebound to $18-$20 and then when natural gas prices come back we can see Talisman at $26-$28.

Source: Talisman Energy: Much More Than A Natural Gas Company