If you are looking for energy stocks to round off your portfolio or add diversification, the following 4 candidates offer great values. Energy is a broad category and the shortlist reflects this by including oil transportation, oil and gas exploration and equipment companies and even a coal stock. While coal may be tainted with the current policy decisions in the United States, over the long term it is impossible to ignore this cheap energy source and it makes sense to consider them while these stocks are cheap (every cycle turns eventually).
For this screen, I have filtered for stocks that have price to earnings multiple under 15 and price to book multiple under 1, without regard to the market capitalization. All of these companies are profitable. As usual, Chinese stocks have been ignored.
We have previously written about StealthGas. This Greek company is a sea-based transporter of LPG, Crude, refined petroleum products and chemicals. The stock trades for 7.75 times earnings and 0.54 times book value. Debt levels are reasonable with debt to equity ratio at around 72%. Shipping is a capital intensive business and while the past few years have been brutal for shippers, the company has been profitable for the last 3 years.
2. Warren Resources (WRES, Market Cap: $210.51 million, Type: Small Cap)
Warren Resources owns natural gas and oil leasehold interests in approximately 94,140 acres in the Rocky Mountains (California, Texas, Wyoming, New Mexico and North Dakota) where it engages in exploration, development and production of crude oil and gas reserves. The price to book ratio is just about 1 and the stock trades at a multiple of 11.32 of the earnings and the company has grown its earnings 75% in the most recent quarter. The PEG ratio stands at 0.89. Debt is relatively low at $91 million. The company has been quietly acquiring additional properties and growing its reserves.
Superior Energy Services provides oil field services and equipment to the oil and gas industry including onshore and sub-sea services. The stock trades at 13.80 P/E and 0.95 P/B. Revenues and earnings more than doubled in 2012 compared to the years prior and its onshore segment has been growing solidly with all the domestic oil/gas activity. If the oil prices remain high, and domestic E&P activity keeps up, the stock should turn in an excellent performance and at these valuations it appears to be a safe buy.
4. Cloud Peak Energy (CLD, Market Cap: $938.08 million, Type: Small Cap)
It costs utilities $3.93/mBTU to burn natural gas while Powder River Basin coal costs in the $2.50 – $2.75 range and Illinois Basin Coal costs $3.25 – $3.50 per mBTU range. At the current natural gas prices, US Thermal coal is highly competitive and has seen a year over year growth of 5% as of June this year while the natural gas use has declined 16%. Since Cloud Peak Energy almost exclusive focuses on PRB coal, it is likely to see demand increase in the near future provided the natural gas prices remain elevated above $3.00/mBTU range. The stock trades at 7.1 times trailing earnings and 0.98 times book value so there is sufficient value to be had today with realistic meaningful growth if we can just get past the political blubber. There is also the export market to consider.
As usual, these screens uncover opportunities but should not be taken as a recommendation without further research.