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Whether we like it or not, oil and gas companies are one of the most influential factors in the status of the global economy. When they shift, all the other pieces move as a result. It can be tricky to know how to invest in this sector, but by focusing on the basic principles of profit and analyst ratings we have developed a list of stocks that warrant more research. The oil and gas companies included all have received a recent 'Buy' or 'Strong Buy' endorsement as well as have profit margins that indicate the company is running efficiently and effectively. We encourage you to take a deeper look.

The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.

Return on Assets [ROA] illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue very few can make very large profits with little investment.

We first looked for oil & gas stocks. From here, we then looked for companies that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3). Next, we then screened for businesses with strong profit margins (1-year operating margin>15%)(ROA > 10%). We did not screen out any market caps.

Do you think these stocks will trade at a higher valuation? Please use our list to assist with your own analysis.

1) Rosetta Resources, Inc. (ROSE)

Sector:Basic Materials
Industry:Independent Oil & Gas
Market Cap:$2.12B
Beta:2.10

Rosetta Resources, Inc. has a Analysts' Rating of 2.40, a Operating Profit Margin of 42.41%, and a Return on Assets of 10.59%. The short interest was 10.37% as of 08/06/2012. Rosetta Resources Inc., an independent exploration and production company, engages in the acquisition, exploration, development, and production of onshore oil and gas resources in the United States. It owns producing and non-producing oil and gas properties located primarily in South Texas, including the Eagle Ford, and in the Southern Alberta Basin in Northwest Montana. As of December 31, 2011, the company had an estimated 965 billion cubic feet equivalent of proved reserves, including 36,370 million barrels of oil, 50,219 million barrels of natural gas liquids, and 446 billion cubic feet of natural gas, as well as drilled 53 net wells.

2) Callon Petroleum Co. (CPE)

Sector:Basic Materials
Industry:Independent Oil & Gas
Market Cap:$198.38M
Beta:2.48

Callon Petroleum Co. has a Analysts' Rating of 1.80, a Operating Profit Margin of 27.80%, and a Return on Assets of 31.80%. The short interest was 3.41% as of 08/06/2012. Callon Petroleum Company engages in the acquisition, exploration, development, and production of crude oil and natural gas properties. The company's properties are located in the Permian Basin in west Texas; the Haynesville Shale in northern Louisiana; and the Gulf of Mexico.

3) CNOOC Ltd. (CEO)

Sector:Basic Materials
Industry:Independent Oil & Gas
Market Cap:$90.10B
Beta:1.47

CNOOC Ltd. has a Analysts' Rating of 2.00, a Operating Profit Margin of 37.61%, and a Return on Assets of 20.00%. The short interest was 0.34% as of 08/06/2012. CNOOC Limited, through its subsidiaries, engages in the exploration, development, production, and sale of crude oil, natural gas, and other petroleum products. Its oil and natural gas properties are located in offshore China, which include Bohai Bay, western South China Sea, eastern South China Sea, and East China Sea, as well as in Indonesia, Iraq, other regions in Asia, Australia, Nigeria, Uganda, the United States of America, Canada, and Argentina. As of December 31, 2011, the company had net proved reserves of approximately 3.19 billion barrels-of-oil equivalent.

4) TransGlobe Energy Corp. (TGA)

Sector:Basic Materials
Industry:Independent Oil & Gas
Market Cap:$677.29M
Beta:1.33

TransGlobe Energy Corp. has a Analysts' Rating of 2.20, a Operating Profit Margin of 60.27%, and a Return on Assets of 17.01%. The short interest was 0.37% as of 08/06/2012. TransGlobe Energy Corporation operates as an exploration and production company with oil interests in the Arab Republic of Egypt and the Republic of Yemen. It has interests in 9 international blocks comprising 5.5 million acres. The company was formerly known as Dusty Mac Mines, Ltd.

5) Continental Resources Inc. (CLR)

Sector:Basic Materials
Industry:Independent Oil & Gas
Market Cap:$11.99B
Beta:1.77

Continental Resources Inc. has a Analysts' Rating of 2.30, a Operating Profit Margin of 52.82%, and a Return on Assets of 11.51%. The short interest was 8.80% as of 08/06/2012. Continental Resources, Inc. engages in the exploration, development, and production of crude oil and natural gas primarily in the north, south, and east regions of the United States. The company primarily sells its oil and natural gas production to end users, as well as to midstream marketing companies or oil refining companies at the lease.

6) QR Energy, LP (QRE)

Sector:Basic Materials
Industry:Independent Oil & Gas
Market Cap:$765.71M
Beta:-

QR Energy, LP has a Analysts' Rating of 1.60, a Operating Profit Margin of 21.33%, and a Return on Assets of 12.76%. The short interest was 0.94% as of 08/06/2012. QR Energy, LP, through its subsidiary, QRE Operating, LLC, engages in the acquisition, exploitation, development, and production of onshore crude oil and natural gas properties in the United States. As of December 31, 2011, its properties consisted of working interests in 3,867 gross producing wells located in Texas, New Mexico, Arkansas, Louisiana, southwestern Kansas, Oklahoma, Florida, and Alabama.

7) Baytex Energy Corp. (BTE)

Sector:Basic Materials
Industry:Independent Oil & Gas
Market Cap:$4.91B
Beta:1.56

Baytex Energy Corp. has a Analysts' Rating of 2.30, a Operating Profit Margin of 28.91%, and a Return on Assets of 10.54%. The short interest was 0.74% as of 08/06/2012. Baytex Energy Corp., an oil and gas company, engages in the acquisition, development, and production of oil and natural gas in the western Canadian Sedimentary Basin and the United States. It offers heavy oil, light oil, and natural gas liquids. As of December 31, 2011, the company had proved plus probable reserves of approximately 252 million barrels of oil equivalent.

*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz.

Source: 7 Sell-Side Backed Oil & Gas Stocks With Strong Profitability