3 Month High In Oil Prices Will Drive This Cheap Energy Producer Higher

Aug. 7.12 | About: Newfield Exploration (NFX)

Oil prices hit three month highs today. Most of the energy stocks have had some nice runs over the past few weeks. One stock that has not participated fully but seems ready to make a significant move higher is Newfield Exploration (NYSE:NFX).

"Newfield Exploration Company is an independent energy company, engaged in the exploration, development, and production of crude oil, natural gas, and natural gas liquids." (Business description from Yahoo Finance)

7 reasons NFX has significant upside from $31 a share:

  1. Even though the company missed earnings this quarter on both the top and the bottom lines, it guided production estimates up. It is also a leading player in the rapidly expanding Utica Shale.
  2. The company is selling at the bottom of its five year valuation range based on P/E, P/B, P/S and P/CF.
  3. After falling for months, consensus estimates for both FY2012 and FY2013 have stabilized in the last week or so.
  4. The stock is cheap at just 10 times forward earnings and has a five year projected PEG of under 1 (.76).
  5. NFX is selling at just 95% of book value and is selling at under 3 times FY2011's operating cash flow. The stock's median price target is $42 from the 20 analysts that cover the stock.
  6. Oil and Gas Liquid production grew 40% Y/Y in the second quarter and now represents around 50% of total production.
  7. The stock looks like it finally hit a long term bottom and recently turned up (See Chart)

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Disclosure: I am long NFX.