Oil and gas stocks are attractive these days. Big companies such as Exxon Mobil (XOM) and Chevron (CVX) command respect from investors because of the solid earnings and dividends they provide. On the other side of the fence, small capital oil and gas companies are also providing key opportunities for investment. Here, I will discuss four relatively small oil and gas stocks with recommendations to investors on the best way to play them for profits now.
Ultra Petroleum (UPL) is trading around $24 at the time of writing, within its 52-week trading range of $22.85 to $51.20. At the current market price, the company is capitalized at $3.64 billion. Its earnings per share during the last reporting period were $2.94. Ultra did not declare dividends because of cash requirements for capital expenditures.
Ultra Petroleum is an independent oil and gas company, engaged in the production of oil and natural gas properties in the United States. Its main development projects are tight gas sand trend located in the Green River Basin and positions in the Marcellus Shale and other horizons located in the north-central Pennsylvania area of the Appalachian Basin. In terms of financial performance, Ultra did well, with positive results of operations for four of the last five years. Historical operating efficiency tends to be high, with the last reporting period posting gross margin of 44.09% and net margin of 41.13%. Short-term growth will likely be hampered due to plans to cut down on natural gas production resulting from a negative price outlook. However, a long-term outlook of sales growth is more positive because of drilling projects in the pipeline and continuing capital expenditures. I recommend buying Ultra, primarily because of its low price to earnings ratio of 8.11, which, when combined with its good margins, makes it an attractive long-term investment.
Contango Oil & Gas (MCF) is trading around $64 at the time of writing, between a 52-week trading range of $51.54 to $69.75. At the current market price, the company is capitalized at $984.38 million. Its earnings per share during the last reporting period were $4.41. Contango did not declare dividends because of cash requirements for capital expenditures.
Contango Oil & Gas is a relatively small independent producer of natural gas and oil, primarily offshore in the Gulf of Mexico. Historical operating efficiency tends to be high, probably because of concentrated operations in the GOM, with the last reporting period posting gross margin of 68.11% and net margin of 31.14%. Return on equity of 16.48% is lower compared to Ultra Petroleum's 33.17% because of Contango's no long-term debt balance sheet. Operations appear stable and near-term outlook will continue to be good because of strong oil demand and high oil prices. I see its price to earnings ratio of 14.25 as fair considering its zero long-term debt position. Contango's price to sales ratio of 4.49 and EV to EBITDA ratio of 5.24 compares well with Ultra Petroleum's 4.11 and 6.56, respectively. I will wait for its current trading to come down to $52 before buying in for maximum returns.
Kodiak Oil & Gas (KOG) is trading around $11 at the time of writing, within a 52-week trading range of $3.59 to $10.90. At the current market price, this implies that the company is capitalized at $2.30 billion. Kodiak did not declare dividends because of losses absorbed last reporting period.
Kodiak is an independent exploration and production company with operations mainly in the U.S. Rocky Mountain region. Its core areas include the Williston Basin in Montana and North Dakota, which contains the Bakken shale and Three Forks, and the Vermillion Basin of the Greater Green River Basin, which has the Baxter shale.
Kodiak is a small company, in terms of market capitalization of $2.26 billion compared to its competitors. Kodiak posted straight losses for the last five years. Kodiak still has a lot of newly established drills, especially in the Bakken shale that are not yet in production. Kodiak has the assets, such as, drills and acreage that could raise its value. However, it faces significant risks, such as competition, uncertainty in natural gas prices, and its ability to produce and sell profitably. I tend to think that speculation, particularly on demand and energy prices, drives its stock price at the top of its 52-week trading range. I recommend holding off on Kodiak for now.
Newfield Exploration (NFX) is hovering around $37 at the time of writing, within a 52-week trading range of $34.42 to $77.93. At the current market price, the company is capitalized at $4.97 billion. Its earnings per share during the last reporting period were $3.99. Newfield did not declare dividends because of cash requirements for capital expenditures.
Newfield Exploration Company is an independent oil and gas company with operations primarily in the United States. It operates producing wells in Anadarko and Arkoma basins and wells in Uinta, Williston, and Southern Alberta basins; interests in 84 deepwater leases including interests in the Gulf of Mexico. The company also had interests in offshore Malaysia and in offshore China.
In terms of financial performance, Newfield appeared profitable for the last two years. Asset turnover of 30%, net margin of 21.81%, and return on equity of 14.84% are all strong profitability numbers. Sales have been increasing the last two years with rising production of oil and natural gas liquids. I think capital expenditures on oil and NGL production would fuel additional revenues that would compensate the expected drop in natural gas sales. Newfield's diversified portfolio of assets provides both flexibility and significant growth potential. In terms of valuation, I think Newfield is a undervalued, with price to earnings ratio of 8.11, price to sales ratio of 3.31 and EV to EBITDA of 4.94. I recommend buying Newfield for its solid performance and reasonable price.