Warren Resources: A $2 Energy Concern Heading Back Up To $4 A Share

| About: Warren Resources, (WRES)

The market had its largest and most impressive rally of the year on Wednesday with all the major indexes up more than 2 ¼ percent. A good portion of the rally was due to the belief that the Federal Reserve stood ready to step in once again to support the market. If this turns out to be the case, I would expect similar impacts to previous efforts where a lot of this excess liquidity flowed into the commodity complex. This should provide a good tailwind to energy prices and could lead to some good "risk on" trades in the beaten down energy sector, especially in the small cap space which has been hammered. Here is a cheap, undervalued E&P concern that is trading at just over $2 a share: Warren Resources (NASDAQ:WRES).

7 reasons WRES is a solid speculative play at just over $2 a share:

  • The four analysts that cover the stock have a median price target of $4 on WRES, a level the stock was at in early March.
  • The stock is cheap at 95% of book value and a five year projected PEG of under 1 (.68).
  • The company more than doubled operating cash flow from FY2009 to FY2011 and continues to increase cash flow so far in FY2012.
  • The stock is dirt cheap at just over 6 times forward earnings, a huge discount to its five year average (22.6).
  • WRES has beat earnings estimates four of the last five quarters. The average beat over consensus for the last four quarters has been north of 20%.
  • The stock is selling at the bottom of its five year valuation range based on P/E, P/CF, P/B and P/S.
  • The stock has good technical support in the $2 to $2.50 range (See Chart).

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Disclosure: I am long WRES.