5 Oil & Gas Small Caps With Strong Earnings And Disciplined Debt Management

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Includes: APAGF, EPM, FOR, GTE, MCF
by: ZetaKap

As the price of oil and gas continues to fluctuate, the number of investors entering this space is on the rise. With good reason - there are lots of opportunities to be had. Today we focused on oil and gas companies with two distinct characteristics, as a way to hone in on the best in class. First, we searched for oil and gas companies that are dependable earners when it comes to profits. Next, because the oil and gas sector is notoriously capital intensive, we focused on the subset of profitable companies that have been able to either bootstrap their operations, or keep the debt down to minimal levels. We take low debt as a signal that the company has a smart, prudent set of managers. If companies with these traits are what you want in your oil and gas picks, we came up with a stellar list for you to consider.

The Long Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.

EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.

The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue

We first looked for oil & gas stocks. We next screened for businesses that have maintained a sound long term capital structure (Long Term D/E Ratio<.1). We then screened for businesses that have shown strong bottom line growth over the last year (1-year fiscal EPS growth rate>10%)(Net Margin [TTM]>10%). We did not screen out any market caps.

Do you think these stocks are undervalued and should be trading higher? Please use our list to assist with your own analysis.

1) Evolution Petroleum Corp. (NYSEMKT:EPM)

Sector Basic Materials
Industry Independent Oil & Gas
Market Cap $230.91M
Beta 1.41
Click to enlarge

EPM stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.00
Earnings Per Share Growth Rate 90.05%
Net Margin 27.63%
Short Interest 5.06%
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Evolution Petroleum Corporation, together with its subsidiaries, engages in the acquisition, exploitation, and development of properties for the production of crude oil and natural gas in the United States. The company's principal asset includes the Delhi Holt Bryant Unit located in the Delhi Field in Northeast Louisiana. It also holds 5,362 net developed acres and approximately 4,179 net acres as undeveloped and associated with its proved drilling locations in the Giddings Field located in Central Texas, as well as own leases on approximately 764 net acres in the Lopez Field in South Texas; and holds Woodford Shale Projects in Southeast Oklahoma. As of June 30, 2011, it had proved reserves of 13,848 thousand barrels of oil equivalent.

2) Apco Oil & Gas International Inc. (NASDAQ:APAGF)

Sector Basic Materials
Industry Independent Oil & Gas
Market Cap $126.44M
Beta 0.07
Click to enlarge

APAGF stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.00
Earnings Per Share Growth Rate 34.23%
Net Margin 62.10%
Short Interest 16.49%
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Apco Oil and Gas International Inc. operates as an oil and gas exploration and production company in South America. The company has producing operations in the Neuqun, Austral, and Northwest basins in Argentina; and exploration activities in Argentina and Colombia. As of March 31, 2012, it had interests in nine oil and gas producing concessions and two exploration permits in Argentina, as well as three exploration and production contracts in Colombia.

3) Contango Oil & Gas Co. (NYSEMKT:MCF)

Sector Basic Materials
Industry Independent Oil & Gas
Market Cap $887.04M
Beta 0.77
Click to enlarge

MCF stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.00
Earnings Per Share Growth Rate 30.06%
Net Margin 36.86%
Short Interest 7.65%
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Contango Oil & Gas Company, an independent natural gas and oil company, explores, develops, produces, and acquires natural gas and oil properties primarily offshore in the Gulf of Mexico. The company was founded in 1986 and is based in Houston, Texas.

4) Gran Tierra Energy, Inc. (NYSEMKT:GTE)

Sector Basic Materials
Industry Independent Oil & Gas
Market Cap $1.31B
Beta 1.20
Click to enlarge

GTE stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.00
Earnings Per Share Growth Rate 220.82%
Net Margin 16.17%
Short Interest 0.69%
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Gran Tierra Energy Inc., an independent energy company, engages in the acquisition, exploration, development, and production of oil and gas properties in Colombia, Argentina, Peru, and Brazil. As of December 31, 2011, the company's acreage included 3.5 million gross acres covering 21 exploration and production contracts in Colombia; 1.4 million gross acres covering 12 exploration and production contracts in Argentina; 6.4 million gross acres covering 5 exploration licenses in Peru; and 0.8 million gross acres covering 6 exploration blocks in Brazil. It also had estimated proved reserves of 30.9 million barrels of oil and natural gas liquids; and 18.3 billion cubic feet of gas. The company was founded in 2005 and is headquartered in Calgary, Canada.

5) Credo Petroleum Corp. (NYSEARCA:CRED)

Sector Basic Materials
Industry Independent Oil & Gas
Market Cap $145.38M
Beta 0.82
Click to enlarge

CRED stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.04
Earnings Per Share Growth Rate 58.78%
Net Margin 24.23%
Short Interest 3.79%
Click to enlarge

CREDO Petroleum Corporation, together with its subsidiaries, engages in the acquisition, exploration, development, and marketing of crude oil and natural gas properties in the Mid-Continent and Rocky Mountain regions of the United States. It operates projects in Texas, Kansas, Wyoming, Colorado, Nebraska, Oklahoma, and North Dakota. The company also owns the patents covering its Calliope Gas Recovery System, to recover stranded reserves from depleted gas reservoirs. It operates approximately 108 wells, as well as owns working interests in 337 producing wells and overriding royalty interests in approximately 1,200 wells.

*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/22/2012.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.