CNBC provided its monthly "20 stocks poised to pop" list yesterday. The list is a cornucopia of picks in different sectors that have reasonable valuations and are significantly under analysts' price targets. Two stocks on the list that caught my eye are in the energy sector.
"Noble Corporation (NE) operates as an offshore drilling contractor for the oil and gas industry. The company offers contract drilling services for oil and gas wells. Its drilling fleet consists of 14 semisubmersibles, 14 drillships, 49 jackups, and 2 submersibles, as well as 11 units under construction, including 5 ultra-deepwater, harsh environment drillships and 6 heavy-duty, harsh environment jackup rigs." (Business description from Yahoo Finance)
4 reasons NE is undervalued at $36 a share:
- The 33 analysts that cover the stock have a median price target of $46 a share, some 30% above the current stock price. Credit Suisse has a $55 price target and an "outperform" rating on NE.
- Earnings are about to explode for this offshore driller. The company made $1.31 a share in FY2011 and is on track to make $2.51 a share in this fiscal year. FY2013 is projected to show another huge bump up in earnings to around $4.50 a share.
- The company is on track to have a 35% revenue increase in FY2012. Analysts believe Noble will have an over 25% sales increase in FY2013 as well.
- The company has an A- rated balance sheet, yields 1.5% and is selling near the bottom of its five year valuation range based on P/S and P/B.
"Nabors Industries (NBR) operates as a land drilling contractor worldwide. The company markets approximately 499 land drilling rigs for oil and gas land drilling operations in the United States Lower 48 states, Alaska, Canada, South America, Mexico, the Middle East, the Far East, the South Pacific, Russia, and Africa." (Business description from Yahoo Finance)
4 reasons NBR has upside from $15 a share:
- The 20 analysts that cover the stock have a mean price target of $19.25 a share, just under 30% above the current stock price. S&P has a "Buy" rating and projects Nabors will grow EPS at a 23% CAGR over the next three years.
- The stock is selling near the bottom of its five year valuation range based on P/E, P/S, P/CF and P/B.
- Insiders have been net buyers of the stock so far in 2012. Major purchase took place at over $17 a share in April.
- NBR has a minuscule five year projected PEG (.51) and sells for just 8.2 forward earnings, a discount to its five year average (12.9).
Disclosure: I am long NE.