It has been a horrid two months for investors in energy and commodity stocks. The downward action in these stocks over the last six to eight weeks has been enough to make an investor want to put his head in the oven. However, the selloffs in some of these stocks provide opportunities for patient investors to pick up speculative stocks at cheap entry levels. One stock that is having a rough go of it recently and will not print profits until FY2013 is Hercules Offshore (HERO). Although not for the faint of heart as it is heavily dependent on a rebound in shallow water drilling in the Gulf. However, it has bounced back strongly during similar pullbacks in the past and has had recent insider buying as well.
Positives on HERO:
- Despite its recent fall, earnings estimates for FY2013 have moved up significantly over the past two months.
- There has been insider buying in the stock in late May for the first time since August (at around the same price insiders picked up shares in the summer).
- Hercules Offshore's management expects Utilization to 'Rebound Sharply' from 1Q Lows which was emphasized in their last earnings call.
"Hercules Offshore provides shallow-water drilling and marine services to the oil and natural gas exploration and production industry worldwide". (Business description from Yahoo Finance)
Four reasons HERO is a solid speculative play at $3 a share:
- The stock is selling near the bottom of its five year valuation range based on P/B, P/S and P/CF. It is selling at just 54% of book value.
- Revenue growth is expected to be solid and accelerate. Analysts project 10% revenue growth for FY2012 and 25% in FY2013.
- The stock is half of analysts' price targets. The median analyst price target by the 18 analysts that cover the stock is $6.25 a share.
- HERO looks like it has some longer term technical support just a little below its current price (See Chart)
(click to enlarge)
Disclosure: I am long HERO.
