I recently wrote an article covering five U.S. oil and gas stocks I felt had the potential to increase shareholder wealth significantly over the next five years. I received a ton of feedback from readers suggesting that the list of five was only the tip of the iceberg in regards to the winning prospects in the U.S. oil patch. In this article, I have selected five more U.S. oil and gas related companies that are great opportunities at current levels. The following is the gist of my thesis as to why these companies stand to profit in the near future followed by a detailed review of each company's fundamental and technical status.
The Middle East is a powder keg about to explode. The energy supply of the globe is threatened once again. You can take your pick of the recent strife in the region. Israel, Iran, Syria, Afghanistan, Iraq and now Libya are smoldering tinderboxes on the cusp of catching fire.
Even so, there is no solution in sight regarding the turmoil or the world's diminishing oil supply. Currently, demand is outstripping supply even as global growth stalls and oil and gas gurus invent new ways to extract the black gold. Most of the easy oil and gas resources have been discovered and depleted. Much more expensive endeavors such as hydraulic fracking and deep sea drilling are the primary sources of new discoveries. Even with all the new discoveries, a majority of the supply for the world's energy requirements still emanate from the Middle East. Any disruption in the supply from the Middle East bodes well for U.S. energy players.
Furthermore, several macro events have occurred, spurring these stocks even higher. The news China is investing billions in infrastructure to stimulate their economy coupled with the positive steps taken by the ECB and the Fed implementing QE has sparked the recent rally in oil. Moreover, the U.S. dollar is sliding, which is bullish for dollar-denominated assets like oil and gas.
In trading over the last week, shares of the Energy Select Sector SPDR (NYSEARCA:XLE) were up sharply. The XLE quickly reacted to the news out of the Middle East, China, Europe and the U.S., reversing trend and going positive. Energy Select Sector SPDR shares are currently trading up about 5% on the week and 17% for the quarter. The coveted golden cross was recently achieved where the 50-day sma crosses above the 200-day sma. This is extremely bullish. The chart below shows the performance of XLE shares for the past year.
Finally, these stocks are all bona fide U.S. energy plays that all have catalysts for future growth regardless of the Middle East or QE. The question is: is now the optimal time to buy?
In the following section, we will perform a review of the fundamental and technical state of each company to determine if this is the right time to start a position. The following table depicts summary statistics and Thursday's performance for the stocks. The following charts are provided by Finviz.com.
EOG Resources, Inc. (NYSE:EOG)
EOG is trading up 22% from the day of my initial recommendation in June when the stock was trading for $94.24. The company is now trading 4% below its 52-week high and has 9% upside potential based on the analysts' mean target price of $121.91 for the company. EOG was trading Thursday for $115.18, up nearly 2% for the day.
Fundamentally, EOG has several positives. The company has a forward P/E of 21.45. EOG pays a dividend with a yield of 0.59%. EOG's expected EPS growth rate for next year is 17.76%. The current net profit margin is 12.14%. EOG's strength comes from its growth in sales and EPS. EOG has quarter-over-quarter sales and EPS growth rates of 13% and 34%, respectively. EOG's PEG ratio is 1.64.
Technically, EOG has been posting higher highs and higher lows since the start of July. The company pierced the 200-day sma in August and never looked back. The stock is in a well-defined uptrend. The 50 day is a couple days away from crossing above the 200-day sma, which will be a very positive technical event referring to as the golden cross. The stock is a buy here.
EOG easily beat its estimates last quarter. Net income rose sharply higher. This was attributed to the company's aggressive shift out of natural gas and into heavier liquids production. This is a strong, conservative, well-run company. I have been recommending it for quite some time now.
Halliburton Company (NYSE:HAL)
Halliburton is trading up 28% from the day of my initial recommendation in June when the stock was trading for $28.57. The company is trading 9% below its 52-week high and has 19% upside potential based on the consensus mean target price of $43.43 for the company. Halliburton was trading Thursday for $36.44, up 2% for the day.
Fundamentally, Halliburton has some positives. The company has a forward P/E of 10.38. Halliburton pays a dividend with a yield of 1%. Halliburton's expected EPS growth rate for next five years is 18%. The current net profit margin is 11.34%. Halliburton's PEG ratio is .59.
Technically, Halliburton has been on fire since June. The company pierced the 200-day sma at the beginning of August and retested it once again at the beginning of September. The RSI is indicating the stock may be slightly overbought here. I would wait for a pullback in the stock prior to starting a position. Nevertheless, long term, the stock is going higher. Halliburton's profit streams are stable.
Kinder Morgan, Inc. (NYSE:KMI)
This is my first time reviewing Kinder. The company is now trading 9% below its 52-week high and has 10% upside potential based on the analysts' mean target price of $39.27 for the company. Kinder was trading Thursday for $35.97, up nearly 1% for the day.
Fundamentally, Kinder has several positives. Kinder pays a dividend with a yield of 3.89%. Kinder's expected EPS growth rate for next year is 59%. The current net profit margin is 7.41%. Kinder's PEG ratio is 1.80.
Technically, Kinder is in an uptrend and poised to break out to the upside. The stock has been in an uptrend since late June. Kinder pays a high yield dividend and has strong oil patch pipeline infrastructure growth prospects with all the new production coming online. The stock is a buy here.
QEP Resources, Inc. (NYSE:QEP)
QEP is trading up 21% from the day of my initial recommendation in May when the stock was trading for $26.88. The company is now trading 15% below its 52-week high and has 20% upside potential based on the analysts' mean target price of $39.14 for the company. QEP was trading Thursday for $32.58, up nearly 3% for the day.
Fundamentally, QEP has several positives. The company has a forward P/E of 14.94. QEP pays a dividend with a yield of 0.25%. QEP's expected EPS growth rate for next year is 44.37%. The current net profit margin is 9.14%. QEP's PEG ratio is 1.64.
Technically, QEP looks good. The stock has been in an uptrend since late June. The stock may be slightly overbought at this time due a RSI of over 70. The stock has gone parabolic in recent days, for good reason. QEP may benefit significantly from its shift away from natural gas and to oil, but give this one a few days to cool down prior to starting a position. Even though I posit the increased margin has not been priced in, the stock is currently overbought.
Southwestern Energy Co. (NYSE:SWN)
The company is trading 19% below its 52-week high and 4% below the consensus mean target price of $37.13 for the company. Southwestern was trading Thursday for $35.76, up over 1% for the day.
Fundamentally, Southwestern has some positives. The company has a forward P/E of 23. EPS is expected to grow by 27% next year. Southwestern is bringing enormous amounts of production online in the Marcellus shale, while Fayetteville production has remained strong and stable.
Technically, the stock recently achieved the coveted golden cross. The golden cross when the 50-day sma cross above the 20-day sma. In my last update on the stock, I stated to wait for a more favorable point to get into this stock. I posit the time is now to start a position.
The Bottom Line
U.S. energy stocks quickly reacted to the news regarding the activities of the central banks around the world. With China, Europe and the U.S. showing the propensity to ease monetary policy and the Middle East looking more and more treacherous, these stocks should do quite well over the next five years.
Even though most of these stocks have already had great runs, don't hold that against them. They are moving higher for good reason and the tailwinds just got vastly stronger. Still, take your time building a position. One of the major factors affecting your potential return in a stock is your cost basis.
Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment decisions.