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Sandridge Energy (NYSE:SD) was one of last week's most traded stocks. There are rumors and articles suggesting it could be a takeover target, despite the stock's high valuation. Should investors seeking energy holdings buy SD to bet big on acquisition rumors?

This is not a good idea because no offer has yet been made. If no offer materializes, investors will have purchased SD shares at a high valuation. Unfortunately, not all rumors and public interest are followed by an offer.

Fortunately, there are other energy stocks which trade at much more attractive valuations. Absent of mergers and acquisitions, the earnings and future cash flows to equity will determine the value of a stock. The future financial potential of a stock can be gauged by using metrics to determine how cheaply a stock is priced, its ability to weather hardship, and its growth potential. As alternatives to SD, consider the following oil and gas stocks with strong track-records and solid credit scores:

Ticker

Company

Industry

10-Year Average ROE

Altman Z-score

APL

Atlas Pipeline Partners LP

Oil & Gas Pipelines

4.2%

3.07

DK

Delek US Holdings Inc.

Oil & Gas Refining & Marketing

11.0%

4.16

HFC

HollyFrontier Corporation

Oil & Gas Refining & Marketing

26.0%

3.13

MUR

Murphy Oil Corporation

Oil & Gas Refining & Marketing

19.0%

4.07

NR

Newpark Resources Inc.

Oil & Gas Equipment & Services

3.3%

3.33

SD

SandRidge Energy, Inc.

Oil & Gas Drilling & Exploration

N/A

0.46

These alternative stocks are all categorized as "safe" according to the Altman Z-score,* indicating that they are not considered bankruptcy risks. Moreover, the average 10-year return on equity demonstrates that APL, DK, HFC, MUR and NR have track records of growing shareholder wealth. It is clear from these two metrics that each of these alternatives is a quality stock.

What's more, these stocks are cheaper and have excellent growth prospects:

Ticker

P/E

P/S

P/B

EPS growth past 5 years

EPS growth next 5 years

APL

6.92

1.48

1.52

32.5%

11.0%

DK

5.27

0.12

1.28

7.8%

15.0%

HFC

5.62

0.46

1.39

24.8%

22.2%

MUR

15.04

0.4

1.26

2.3%

14.0%

NR

10.2

0.78

1.51

16.1%

11.0%

SD

N/A

2.43

2.1

-3.7%

10.0%

These alternative stocks show there is no need to bet on takeover rumors when there are many energy stocks with fantastic growth potential trading at cheaper price-to-book, price-to-earnings, and price-to-sales multiples. APL, DK, HFC, MUR and NR also have higher growth prospects based on analyst projections and past trends. They are clearly better energy stock investments on the basis of growth and value.

As standouts, consider Atlas Pipeline Partners and Delek U.S. Holdings. These have institutional ownership of 41.5% and 21.8%, respectively, much lower than the 67.1% institutional ownership of SandRidge. This difference is bullish for APL and DK shares (relative to SD shares) since institutions haven't filled up on these pipeline stocks yet. Moreover, these APL and DK shares pay 6.06% and 1.01% dividend yields, respectively, whereas SD shares do not pay a dividend. This means that SD shareholders do not get paid while they wait for a takeover that may never come.

*Please read the article disclaimer.

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

Source: 5 Energy Stocks With Lower Valuations Than Sandridge Energy