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I continued to believe the market is overvalued after the large rally of the last three months. However, any pullback is likely to be minor over the coming few months as any dip will be attacked by money managers who are woefully behind their benchmarks for the year. This dynamic will probably start to change after the election as fund managers start to throw in the towel on beating the market for 2012 and as the headwinds from 2013 (Fiscal Cliff, Iran, Europe, aftermath of election…etc..) come into full focus. Given this, I am not adding to my shorts as much as I normally would given the current anemic job and economic growth. In fact, I am looking to add to my energy positions on any pullback (hedged of course) as I think commodity stocks will be big winners in the years ahead (I am assuming Obama gets re-elected and government spending and Bernanke continue to go unchecked). Two fast growing E&P producers I have on radar for the next dip are below.

"Rosetta Resources (NASDAQ:ROSE) is an independent exploration and production company that 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." (Business description from Yahoo Finance)

4 reasons ROSE a good growth play at under $47 a share:

  1. Revenues are exploding at this small E&P producer. Sales are tracking to increase around 35% in FY2012 and analysts have the company producing over 30% growth in FY2013. The stock sports a five year projected PEG of under 1 (.92).
  2. The company has doubled its operating cash flow over the past three years.
  3. ROSE is a little over 10% above the price level several insiders made purchases at in May. In addition, Credit Suisse raised its priced target to $63 from $56 in August and maintained its "outperform." The analyst firm has the Rosetta making just under $9 a share in earnings for FY2014.
  4. The new production the company is bringing on line is lessening its exposure to low natural gas prices. ROSE should be at a 60% plus ratio of oils & liquids by yearend.

"Whiting Petroleum Corporation (NYSE:WLL) is an independent oil and gas company that engages in the acquisition, development, exploitation, exploration, and production of oil and gas primarily in the Permian Basin, Rocky Mountains, Mid-Continent, Gulf Coast, and Michigan regions of the United States." (Business description from Yahoo Finance)

4 reasons WLL still has upside at $49 a share:

  1. Given the company's asset portfolio and market capitalization (approximately $7B with debt), it would make a logical and strategic acquisition for a bigger player. Whiting is a consistent rumored acquisition target.
  2. The thirty analysts that cover the stock have a median price target of $59 a share on WLL. Credit Suisse has an "outperform" rating and a $65 price target on the stock. It believes Whiting will produce almost $8 a share in earnings per share in FY2014.
  3. The stock sells for less than 13 times forward earnings, a discount to its five year average (16.2) despite its impressive revenue growth.
  4. The company has almost tripled operating cash flow over the past three years and the stock sells for less than five times OCF.
Source: 2 Fast Growing E&P Concerns To Pick Up On The Next Dip