Friday May 4th marked the third day of a downward slide in the price of oil. NYMEX Crude Oil prices closed at 98.59 a barrel, down 3.95 from Thursday's close. Many investors and traders noted that a dismal unemployment number sent prices tumbling. That being said, I think these five companies have great long term growth potential and excellent yields moving forward.
ConocoPhillips (COP) - The Houston, Texas integrated energy company currently operates in six countries, and continues to expand its global footprint in such areas as exploration, production and the refining of oil, gas and various other alternative energy solutions. COP currently trades at a P/E ratio of 5.8 and yields 5.0% ($2.64).
Hitting a new 52-week low on May 4th, ConocoPhillips remains a great long term buy for most investors. The 5.0% yield is very attractive even though COP missed recent EPS estimates by nearly $0.06/share. The upcoming quarter should bode well for the company, especially since it sold an oil refinery property to Delta Airlines (DAL) and spun-off Phillips 66 (PSX). Analysts are estimating COP to earn $1.51/share on $10.09 billion in revenue for the June quarter, and I agree results will be in-line with what the street is expecting. Investors should consider taking a position in COP and maybe putting that position in a dividend re-investment plan or DRIP account, since the company currently yields 5.0%.
Valero Energy Corporation (VLO) - The San Antonio, Texas based petroleum and marketing company currently trades at an 8.26 P/E ratio and yields 2.60% ($0.60). VLO most recently exceeded the research firm Zacks' consensus estimates as it reported quarterly EPS of $0.31/share on revenue of $35.16 billion. Zacks Research was calling for Valero to earn $0.29/share on revenue of $29.40 billion.
By most investing standards Valero is a very cheap stock, especially at the level in which it trades. The stock is currently trading at around $23/share and recently announced a quarterly dividend distribution of $0.15/share. Investors should acquire conservative positions in VLO, and increase those positions during any short term dips in the stock price. The stock is very attractive below both the $25/share and $30/share levels, since the yield would remain over 2.0%. If quarterly EPS was to initiate a streak of three or four consecutive quarters of positive results, the upside could be as high as 25% at the current trading levels.
Chevron Corporation (CVX) - The San Ramon, California based diversified energy company currently trades at a P/E ratio of 7.61 and yields 3.5% ($3.60). In their most recent quarter, CVX surpassed EPS estimates by $0.01/share ($3.27/share vs. $3.26/share), however they fell short on revenue as they reported $58.9 billion when the street was expecting $72.42 billion.
Even though earnings were a mixed bag, it shouldn't deter investors. The stock is very cheap and has performed very well over the last five years. Since May 2007 the stock is up almost 29.3% and since it's February 2009 lows its up almost 50%. If we were to use the Graham Number, as noted by Kapitall in their last Seeking Alpha article, the stock has a potential upside of another 28%. Investors should see CVX as a great buy & hold play, and possibly acquire a moderate position and add or subtract shares as they see fit.
Transocean Limited (RIG) - Headquartered in Zug, Switzerland, RIG currently trades at 25.9% above its 52-week low and yields 6.6% ($3.16). First quarter earnings were refreshing to say the least, RIG beat estimates by 105% when they reported EPS of $0.66/share vs. estimates of $0.32/share. The revenue numbers however, came in at $2.33 billion dollars which was 3.6% below the Zacks Research estimate of $2.39 billion dollars.
RIG is a great play for the long term and dividend investor at these levels. UBS recently upped its price target for Transocean to $70/share as offshore drilling fundamentals continue to improve year over year. According to CEO Steven Newman, and as noted on the company's first quarter conference call, "Transocean is extremely well positioned to benefit from this positive market environment. First and foremost, our people are among the best in the industry and continue to set us apart from our competitors, and I thank the Transocean personnel around the world for their continuing efforts to achieve our vision". The play here is buy and hold, or for that matter wait and see, there's been a lot of discussion regarding the continuation of RIG's dividend and potential investors are anxious to see what the company has to say regarding an upcoming quarterly distribution on May 18th at the annual shareholder meeting.
Noble Corporation (NE) - The Baar, Switzerland based off-shore drilling company currently trades at a P/E ratio of 21.29 and yields 1.40% ($0.52). In its latest Fleet Status Report the company noted minimal unpaid downtime came in at 3.5% and updates on three of their new contracts which were previously disclosed. These three contracts, all with significant day rates, are going to play a pivotal role moving forward for not only Noble, but for its potential investors and current shareholders as well.
Noble Corporation has pretty good long term potential. The company recently surpassed quarterly EPS estimates and came right in line with revenue estimates. Analysts were expecting NE to earn $0.41/share on $794.1 million, when in fact they earned $0.47/share on record revenue of $797.7 million. Investors should know that the price of Noble Corporation's stock fluctuates in a similar direction as oil prices. The stock took a 5.8% haircut on Friday, which in my opinion creates a buying opportunity. I'd suggest the long term investor acquires small positions in the company, and as future fleet status and quarterly reports become filed, determine whether or not to increase or decrease one's position.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.