5 Reasons To Buy Cramer Favorite Statoil

Mar.22.12 | About: Statoil ASA (STO)

Statoil ASA, (NYSE:STO) is a company we may soon be hearing much more about in the future. Statoil is a major oil and gas company based in Norway. Oil stocks are capturing the interests of many investors who are positioning themselves to benefit from rising oil prices, shield their portfolios from the effects of inflation and the loose money policies coming from a number of central banks.

As governments print money to cure debt woes, investors are seeking hard assets to buy like oil and gold stocks. While most people are familiar with the major oil companies based in the U.S., Statoil is worth getting to know better because it is large enough to make massive new oil finds, and yet small enough to grow rapidly. Here are 5 reasons to consider Statoil as an investment:

  1. Mad Money's Jim Cramer recently gave Statoil shares a buy rating. When Cramer says buy, many people listen and stocks favored by Jim Cramer are often discussed on his show repeatedly over time. Cramer thinks that Statoil has an impressive track record and he believes the company has many positive catalysts on the horizon. Cramer is not the only one taking notice, on March 9, Deutsche Bank upgraded Statoil to a buy rating as well.
  2. With a yield of about 3.3%, the dividend offered by Statoil is one of the highest available in the oil sector. Furthermore, since this stock has earnings power of nearly $3 per share and with the annual dividend payment below $1 per share, there is plenty of room for dividend increases in the future. Investors need to consider the current yield as well as the potential for dividend growth, and Statoil offers both.
  3. According to data from Yahoo Finance,Statoil has very significant reserves: Statoil had proved reserves of 2,124 million barrels of oil, as well as 509 billion cubic meters of natural gas, corresponding to aggregate proved reserves of 5,325 million barrels-of-oil equivalent. Statoil also operates over 2,200 fuel stations.
  4. Statoil has significant growth potential for many years thanks to a massive oil and gas discovery in the Barents Sea. Statoil is a 50% partner in this project and the estimated oil reserves are over 500 million barrels. Statoil plans to do additional drilling in the area, so the reserve potential could continue to grow. With this level of opportunity in the Barents Sea, plus additional projects worldwide, Statoil is poised for growth for many years to come.
  5. Statoil has been reporting solid earnings: Fourth-quarter 2011 earnings came in at 79 cents per share which compares favorably to the same quarter in 2010, which was 58 cents per share. For full-year 2011, earnings were $2.84 per share. With a record of beating estimates recently, the earnings estimates from Yahoo Finance (shown below) appear too low. The bar appears to be set low, and Statoil looks positioned to continue outperforming most oil stocks.

Oil seems to be poised for a secular uptrend, and Statoil appears ready to take advantage of it for many years to come. The stock should be considered on any pullbacks, especially between $25 to $27 per share, where it appears to have strong support.

Here are some key points for STO:

  • Current share price: $27.46
  • The 52 week range is $20.12 to $29.67
  • Earnings estimates for 2012: $2.80 per share
  • Earnings estimates for 2012: $2.83 per share
  • Annual dividend: 94 cents per share which yields 3.3%

Data is sourced from Yahoo Finance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.