In our last article we analyzed the large cap US headquartered energy companies based on fundamental indicators such as dividend yield and income growth. However investment opportunities in the energy sector are not limited to US-based companies.
Recently in an interview with Forbes, PetroBras (NYSE:PBR) CEO stated “Petrobras will focus on Brazil rather than looking overseas for expansion as it aims to overtake Exxon (NYSE:XOM) as the world’s largest oil company. No other country in the world has produced more (recent) oil discoveries than Brazil.” George Soros is extremely bullish about Petrobras, even though he is bearish about emerging markets.
It should also be noted that besides PetroBras, PetroChina (NYSE:PTR) is a fast growing company as well. In fact there are many non-US energy titans with tremendous returns that offer an opportunity to invest in foreign markets. Therefore we decided to analyze foreign companies that are in the oil and gas business. Twenty-four companies are included in this research. Our ranking criteria includes market capitalization, current and forward P/E ratios, dividend yield, EPS Growth, PEG, profit margin and Beta values. The average YTD return of these stocks is 12.2%.
Highest Market Capitalization: Petrobras is the largest company with a current market cap of $256 billion, followed by PetroChina [$249 billion] and British Petroleum (NYSE:BP) [$152 billion]. BP is very popular among hedge funds. John Griffin’s Blue Ridge Capital, David Einhorn’s Greenlight Capital, and Whitney Tilson’s T2 Partners have BP in their portfolios.
Lowest Market Capitalization: The smallest companies in our research list still have market caps above $10 Billion. Noble Corp (NYSE:NE) has a market cap of $11.3 billion, followed by Penn West (PWE) and Weatherford International (NYSE:WFT), each of which has market caps of $13.3 billion and $17.9 billion, respectively. T. Boone Pickens’ BP Capital, Dan Loeb’s Third Point and Barry Rosenstein’s Jana Partners like WFT. Boone Pickens also has NE in his portfolio.
Highest Forward P/E Ratio: Encana Corp. (NYSE:ECA) has the highest forward P/E ratio of 28.05, followed by Cenovus Energy (NYSE:CVE) [21.03] and Talisman (NYSE:TLM) [19.86]. Forward P/E will be lower than the current P/E if investors expect the profits to grow in the future. Based on the current P/E ratios, these values imply an expected profit increase of 120% for Talisman and 30% for Cenovus. Encana’s profits are expected to decline by almost 50%. Tom Steyer’s Farallon and Leon Cooperman’s Omega Advisors are bullish about Encana.
Lowest Forward P/E Ratio: BP has the lowest forward P/E ratio of 6.81, followed by China Petroleum (NYSE:SNP) [7.00] and Eni SpA (NYSE:E) [8.11]. These estimates indicate a 25% profit increase for China Petroleum and 20% increase for Eni SpA.
Lowest P/E Ratio: China Petroleum has the lowest P/E ratio of 9.23, followed by Total (9.46) and PetroBras (9.51). For a value investor, these companies mean safe yet high returns.
Lowest PEG: Repsol YPF (REP) has the lowest PEG of 0.42, followed by China Petroleum (0.54), and CNOOC (NYSE:CEO) [0.73]. These low PEG values might indicate that these stocks are undervalued. Note that unlike the P/E ratio, PEG is based on estimated future profits.
Best EPS Growth in the Last Five Years: PetroBras has the highest EPS growth rate of 23.82%. Next is Noble Corporation (NE) with an EPS growth rate of 22.84%. CNOOC (CEO) ranks third with an EPS growth rate of 10.89%.
Best Profit Margin: Average profit margin of the companies included in our research is 10.86%. The following companies have profit margins greater than average: CNOOC (29.16%), Noble Corporation (27.55%), Canadian Natural Resources (NYSE:CNQ) [20.41%], Encana (ECA) [16.90%], PetroBras (16.24%), YPF (14.44%), and Sasol (NYSE:SSL) [13.40%].
Lowest Beta: Beta is a measure of volatility. It indicates the correlation between the stock price and market index. A lower Beta usually indicates a safer return. The average Beta of the energy stocks included in our analysis is 1.20 which is slightly higher than their American counterparts (1.06) Enridge (NYSE:ENB) has the lowest Beta of 0.69, followed YPF and Eni SpA, each of which has Beta values of 0.85 and 0.91, respectively.
Highest P/E Ratio: Some companies in our analysis have very large P/E ratios: Penn West Energy Trust (PWE) has the highest P/E ratio (52.55), followed by Talisman Energy (47.73) and Suncor (NYSE:SU) [39.18]. A high P/E ratio that is well above industry average might imply an overvalued stock. Therefore one needs to careful when buying these energy stocks.
Highest PEG: Weatherford (WFT) has the highest PEG of 30.19, followed by Suncor (4.05) and Eni SpA (3.39). PEG is favored by many investors over the price/earnings ratio because it also accounts for estimated earnings growth. A higher PEG implies that these stocks are overvalued.
Worst EPS Growth in Last 5 years: There are some companies whose earnings deteriorated in the last five years. Weatherford performed the worst (-46.44%), followed by Talisman (-30.02) and Suncor (-9.14%).
Worst Profit Margin: While most energy companies are very profitable, the following companies have the profit margins below average: Weatherford (0.38%), China Petroleum (3.84%), Suncor (5.74%), Enbridge (6.41%), StatOil (7.11%), Eni SpA (7.43%), Cenovus (CVE) (7.65%), Total SA (TOT) (7.69%), Talisman (7.72%), Imperial Oil (NYSEMKT:IMO) (8.81%), Penn West (9.27%), PetroChina (9.41%) and Nexen (NXY) (10.02%)
Highest Beta: A high Beta usually indicates a more volatile stock price. Most energy companies tend to have low Betas, while the following companies have Beta values higher than 1.5: Canadian Natural Resources and Suncor have beta values of 1.63, and 1.57 respectively.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.