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In looking for future energy stock winners, I search for companies with high growth prospects. The stocks I look for have to show stable financial conditions and generate significant free cash flow. However, in order to find the proper moment for an opening position, a technical analysis with a momentum indicator can be of great assistance for investors.

I have elaborated a screening method, which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research.

The screen's formula requires all stocks to comply with all following demands:

  1. The stock is included in the Russell 3000 index. Russell Investment explanation: "The Russell 3000 Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000 Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected."
  2. Earnings growth estimates for the next 5 years (per annum) is greater than 10%.
  3. Price to free cash flow is less than 13, (many investors prefer using free cash flow instead of net income to measure a company's financial performance, because free cash flow is more difficult to manipulate. Free cash flow is the operating cash flow minus capital expenditure).
  4. 10-day moving average is over 20-day moving average, and the cross happened 2 days or less prior to the start of the screen (short term momentum indicator).

I used Portfolio123's powerful free screener to perform the search. After running this screen on September 17, 2012, I obtained as results the 4 following stocks:

Basic Energy Services, Inc. (NYSE:BAS)

The Company's price to free cash flow for the trailing 12 months is very low 2.8, and the PEG ratio is also very low only 0.68. The average annual earnings growth for the next 5 years (per annum) is 10%. Basic repurchased 535,015 shares at an average cost of $9.34 per share during the period from the reinstatement of the share repurchase program on May 23, 2012 through June 30, 2012. As of July 25, 2012, a total of 1,081,741 shares have been repurchased at an average cost of $9.47 per share. All these factors make the stock quite attractive.

Business description from Yahoo Finance (see here):

Basic Energy Services, Inc. provides various well site services to oil and natural gas drilling and producing companies in the United States. Its Completion and Remedial Services segment provides pressure pumping services, such as cementing, acidizing, fracturing, coiled tubing, nitrogen, and pressure testing; rental and fishing tools; coiled tubing; snubbing services; thru-tubing; cased-hole wireline services; and underbalanced drilling in low pressure and fluid sensitive reservoirs. Basic Energy Services, Inc. was founded in 1992 and is based in Midland, Texas.

Chart: finviz.com

Peabody Energy Corp. (NYSE:BTU)

The Company's price to free cash flow for the trailing 12 months is only 10.6, and the PEG ratio is also very low only 0.40. The average annual earnings growth for the next 5 years (per annum) is quite high 18.3%. Coal generation has recently increased following hot summer weather and higher natural gas prices, resulting in above-average seasonal drawdowns in utility stockpiles. U.S. gas prices have rebounded more than 50 percent from their springtime lows, and Powder River Basin coal has started to return to higher consumption levels given its competitiveness with natural gas prices of $2.50 to $2.75 per mmBtu. All these factors make the stock quite attractive.

Business description from Yahoo Finance (see here):

Peabody Energy Corporation engages in the mining of coal. It mines, prepares, and sells thermal coal to electric utilities and metallurgical coal to industrial customers. The company owns interests in 30 coal mining operations located in the United States and Australia, as well as owns joint venture interest in a Venezuela mine. It is also involved in marketing, brokering, and trading coal. In addition, the company develops a mine-mouth coal-fueled generating plant; and Btu Conversion projects that are designed to convert coal to natural gas or transportation fuels; and clean coal technologies. As of December 31, 2011, it had 9 billion tons of proven and probable coal reserves. The company was founded in 1883 and is headquartered in St. Louis, Missouri.

Chart: finviz.com

Helix Energy Solutions Group, Inc. (NYSE:HLX)

The Company's price to free cash flow for the trailing 12 months is only 7.9 and the PEG ratio is also low only 0.97. The average annual earnings growth for the next 5 years (per annum) is 12%. The consolidated net debt at June 30, 2012 decreased to $531 million from $560 million as of March 31, 2012. The Company's total liquidity at June 30, 2012 was approximately $1.1 billion, consisting of cash on hand of $650 million and revolver availability of $454 million. Net debt to book capitalization as of June 30, 2012 was 25%. HLX stock seems to be a good investment right now.

Business description from Yahoo Finance (see here):

Helix Energy Solutions Group, Inc., together with its subsidiaries, operates as an offshore energy company. It provides reservoir development solutions and other contracting services to the energy market, as well as to its oil and gas properties. The company offers various contracting services in the Gulf of Mexico, North Sea, the Asia Pacific, and west Africa regions primarily in deepwater. Helix Energy Solutions Group, Inc. was incorporated in 1979 and is headquartered in Houston, Texas.

Chart: finviz.com

TGC Industries Inc. (NASDAQ:TGE)

The Company's price to free cash flow for the trailing 12 months is only 12.7, and the PEG ratio is very low only 0.23. The average annual earnings growth for the next 5 years (per annum) is very high 41%. The Company's current backlog of approximately $112 million, which more than doubled from a year ago, is the result of its success in penetrating new growth regions with major domestic and international clients. TGE stock seems to be a good investment right now.

Business description from Yahoo Finance (see here):

TGC Industries, Inc. provides geophysical services for clients in the oil and gas business in the United States and Canada. It conducts three-dimensional surveys and provides seismic data acquisition services primarily to onshore oil and natural gas exploration and development companies for use in the onshore drilling and production of oil and natural gas. TGC Industries, Inc. was founded in 1967 and is headquartered in Plano, Texas.

Chart: finviz.com

Source: 4 Energy Stocks With Positive Momentum And Low Price-To-Free-Cash-Flow