Since 2008, oil prices have been on a rocky ride. From a peak of $160 a barrel, to the crash into the $70s, oil certainly has had its ups and downs. The reason why oil can be volatile is because it is tied to many different events, also known as correlations. The oil markets and the U.S. stock markets tend to be pretty correlated (rising and falling together), inverse relationship to the U.S. dollar, and be affected by the state of the economy. Obviously, there is a lot that can affect the price of energy, which is why it is wiser to purchase companies that can hedge their oil and gas. While this can be an effective method, futures trading is highly speculative and is reserved for only the savviest of traders. Instead of buying a large integrated name such as Exxon Mobil Corporation (NYSE: XOM) or Chevron Corporation (NYSE: CVX), I am suggesting you take a look at Warren Resources Inc. (NASDAQ: WRES). "Warren Resources, Inc., an independent energy company, engages in the exploration, development, and production of onshore crude oil and gas reserves. The company holds interests in various properties that are located in California, Wyoming, New Mexico, North Dakota, and Texas" (finviz). Right now the company is working on a variety of projects in these states, including a new shale project in California.
Turning to the fundamentals, Warren Resources has a market cap of $228.14 million, and is currently rated a "hold" from analysts. Price to earnings is at 7.5 and forward price to earnings shows up at 9.26. Price earnings growth, or PEG, is undervalued at .75, price to sales is at 1.78, price to book is 1.03, and price to cash is at 22.59. The company has a total debt to equity of .44 and cash per share of .14. This gives the company a dismal current ratio rating of .80. Earnings are expected to fall 26.70 percent this year, rise 1.49 percent next year, and 10 percent over the next five years. Margins are quite good with gross margin at 70.6 percent, operating margin of 21.2 percent, and profit margin of 24 percent. Management efficiency ratios could use some work with a return on assets of 8.4 percent, return on equity of 15 percent, and return on investment of 1.9 percent.
Insiders currently own just 1.2 percent of all Warren Resources shares, but transactions are up over 21 percent in favor of bullish positions. Additionally, institutional investors own almost 70 percent of all shares, a big sign that Wall Street believes in the long-term success of Warren Resources; at least right now.
Overall, I think Warren Resources in a great position to post nice profits and even could be an acquisition target. Investors that are interested should watch technical, as the price action is currently at support and will be interesting to see if it holds or if more downside is to follow. I suggest putting this name on your watch list and watch for any developments.