With the recent market correction and the plunge in commodity prices, stocks in the oil sector have seen some of the sharpest drops. However, the decline in many of the oil sector stocks seems exaggerated, and one sign that confirms this is the sudden surge of insider buying in this industry. There appears to be a disconnect between investors who are very fearful, and the real fundamentals for the oil sector. Unless a worst-case scenario plays out over the European debt crisis and the U.S. fiscal cliff, it looks like the current drop in these stocks is just another solid buying opportunity. Here are a few beaten-down stocks that are seeing a sudden round of insider buying, which could be a buy signal for other investors to follow:
Sandridge Energy (SD) shares were trading up to about $9 earlier this year, but the market downtrend has pushed the stock to about $6. Since this company has significant exposure to natural gas, financial results have been impacted by low prices. However, the company also has substantial oil reserves and management has taken steps to increase the focus towards oil. As such, it recently announced the $1.3 billion acquisition of Dynamic Offshore Resources, LLC., which has oil-rich assets, production and cash flow. These assets will add to the current projects Sandridge already has in Texas, the Gulf of Mexico and the Permian Basin. Sandridge itself has been the subject of takeover speculation in the recent past, and with the company now offering more oil exposure, and with the share price depressed, a deal could make sense for a larger company to consider. At least one insider seems to think the stock is a great buy now: On June 4, 2012, Roy T. Oliver, a director, bought 50,000 shares in a transaction valued at about $290,000.
Here are some key points for SD:
Current share price: $6.34
The 52 week range is $4.55 to $12.36
Earnings estimates for 2012: 16 cents per share
Earnings estimates for 2013: 31 cents per share
Annual dividend: none
Atwood Oceanics (ATW) shares were trading for about $48 per share, just a few weeks ago. The market correction has taken the stock down to just about 10 times earnings. This company operates a global fleet of semi-submersible rigs, semi-submersible tender assist rigs, jack-up drilling rigs, and submersible drilling rigs. This equipment is used for major offshore oil and gas drilling projects. Atwood has a relatively young fleet which reduces maintenance costs, downtime from equipment failure and also allows it to command higher rates from oil and gas companies. This company has a solid balance sheet and analysts expect earnings to grow over 25% in 2013. This type of growth rate indicates the shares are undervalued when trading for just around 10 times earnings. The company recently reported solid financial results with net income of $59.5 million or 90 cents per diluted share, on revenues of $171.6 million for the quarter ended March 31, 2012. On June 5, 2012, Robert J. Saltiel, a director, bought 5,000 shares in a transaction valued at about $188,000.
Here are some key points for ATW:
Current share price: $39.28
The 52 week range is $30.64 to $48.91
Earnings estimates for 2012: $3.88 per share
Earnings estimates for 2013: $5.04 per share
Annual dividend: None
McDermott International (MDR) shares have dropped like most stocks in the oil sector, but this company is doing quite well. McDermott offers engineering and construction services to the oil and gas industry. The company has been awarded a number of important new contracts in 2012 that adds to the existing backlog. In early May, it received a contract from for BG Trinidad & Tobago Ltd. to build two new permanent living quarter modules. Another big plus is the strength of the balance sheet. McDermott has about $680 million in cash, and around $93 million in debt. Many companies in the oil sector have more debt than cash, so McDermott's financial position stands out as exceptional. The stock trades for just about 10 times earnings, and for only a small premium over book value, which is $7.34 per share. Multiple insiders have bought shares recently, including the CEO. On June 6, 2012, Stephen Marcum Johnson, the CEO, bought 102,368 shares in a transaction valued at about $986,613.
Here are some key points for MDR:
Current share price: $10.73
The 52 week range is $9.04 to $21.69
Earnings estimates for 2012: 96 cents per share
Earnings estimates for 2013: $1.19 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 have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.