The price of oil has dropped sharply in recent days, and for the first time in months, it just closed below $100 per barrel. Oil sector stocks seemed to have been anticipating a drop in oil for the past few weeks as many major oil stocks declined well before oil did, and at a much sharper rate. This appears to have brought new opportunities forward and a handful of insiders at oil companies are making significant new stock buys. An investment in the oil sector is likely to reward longer-term investors, because in spite of short-term economic woes, demand for energy is likely to rise as the global population increases. Consumers in emerging market countries are also likely to increase the demand for energy as their disposable income rises. The combination of lower stock prices and insider buying makes it a smart time to look at select stocks in this sector. Here is a closer look at a few stocks where insiders have recently made notable stock purchases:
Basic Energy Services, Inc. (BAS) shares have plunged and now trade for almost one-third of the 52-week high of $37.79, which was reached in July of 2011. This company offers a number of services to the oil and gas industry which includes: well servicing, pumping services, fluid services, drilling, well site construction and more. This company has seen impressive growth over the past several years however, investors seem to be concerned with the low price of natural gas and the level of gas wells that are being shut-down by a number of gas producers. Lower oil and gas prices are likely to lead to reduced demand for the types of services that this company offers, however this stock might be close to pricing in these negatives. One other concern could be that the company balance sheet has high levels of debt at about $782 million and only around $67 million in cash. Thomas Moore Jr., a director, bought 11,000 shares on April 23, 2012, in a transaction valued at about $148,000. This stock hit a 52-week low of $12.49 in September, 2011 and it could find support around that level soon.
Here are some key points for BAS:
- Current share price: $13.52
- The 52 week range is $12.49 to $37.79
- Earnings estimates for 2012: $2.08 per share
- Earnings estimates for 2013: $2.14 per share
- Annual dividend: none
Hess Corporation (HES) shares are trading near 52-week lows and it has also seen some recent insider buying activity. This oil and gas company has diversified operations around the world, which include exploration and production as well as operating storage terminals. This stock topped out around $66 per share in February, but it has been under pressure ever since and now trades below book value, which is $56.29. The company recently reported earnings, in which profits dropped about 41%. For the first quarter of 2012, Hess earned $545 million, or $1.60 per share. In the same period last year, earnings were $929 million, or $2.74 per share, however, those higher earnings were partially due to gains on asset sales. Two insiders appear to find value in the stock at current levels: John B. Hess, an officer, bought 48,000 shares on April 29, 2012, in a transaction valued at about $2,496,000. Plus, a director named John Mullin bought 10,000 share on May 2, 2012 in a transaction worth around $536,000. This stock hit a 52-week low of $46.66 in October, 2011, so the downside risk at current levels might be limited.
Here are some key points for HES:
- Current share price: $50.94
- The 52 week range is $46.66 to $80.29
- Earnings estimates for 2012: $6.50 per share
- Earnings estimates for 2013: $7.75 per share
- Annual dividend: 40 cents per share which yields .8%
Nabors Industries, Ltd. (NBR) shares have been in a major downtrend since hitting a high of $27.84 in May, 2011. The stock bottomed out at $11.05 in October, 2011, and then rebounded, but it has been heading back down recently. Nabors Industries provides a variety of services to the oil and gas industry which includes fracking, land drilling, engineering, transportation and more. Since the natural gas producers have been reducing drilling plans due to record-low prices, this company is likely to see softening demand from those companies in the coming quarters. Also, the Obama Administration recently announced tougher regulations for the fracking industry and that could be another reason why investors are getting bearish. However, this hasn't stopped one insider from buying: James R. Crane, an officer, bought 58,000 shares on April 30, 2012, in a transaction valued at about $1,000,000. This stock hit a 52-week low of $11.05 in October, 2011, so it might not have found solid support yet, if markets and oil prices keep falling.
Here are some key points for NBR:
- Current share price: $15.49
- The 52 week range is $11.05 to $28.74
- Earnings estimates for 2012: $2.22 per share
- Earnings estimates for 2013: $2.56 per share
- Annual dividend: none
Data is sourced from Yahoo Finance. 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.
Disclosure: I am long NBR.