Find the small-cap companies that will thrive in the new market
As prices for oil have continued to plunge, share prices for energy stocks have been pretty abysmal as well. The broad sector proxy Energy Select Sector SPDR ETF (NYSEARCA:XLE[1]) is still down about 21% from its 52-week high. That kind of drop has some value hounds beginning to lick their chops at the potential bargains in the sector.
[2]But the biggest bargains could be in the small-cap energy stocks.
Smaller producers have been hit insanely hard as oil and natural gas have fallen. The basic idea is that while the giants can withstand sustained lower energy prices, many of these smaller producers can’t. That’ll lead to a wave of defaults, closures and even bankruptcies.
But not all small-cap energy stocks are going the way of the dodo. In fact, some continue to thrive in the new price environment. For investors looking for bargains among the oil price wreckage, these smaller stocks could turn out to be great long term bets.
Here are three small-cap energy stocks to buy today.
If there’s one area of the shale revolution that can survive lower oil prices, it’s the Bakken. Featuring prolific reserves and one of the lowest costs of production in terms of shale, Bakken producers shouldn’t have any real trouble getting through the lower-priced environment.
That’s why small-cap energy stock Oasis Petroleum Inc. (NYSE:OAS) could be such a great bargain. OAS has seen its share price fall a whopping 75% and now can be had for a price-to-earnings ratio of just 4.
For that low price, investors are getting one of the best producers in the region — particularly considering OAS’s relatively low cost of production. Oasis is still a profitable energy stock with oil down in this range.
Over the few years, OAS has managed to increase its reserves in the Bakken immensely via drilling and strategic acquisitions of smaller wildcatters. More importantly, those reserves are predominately oil-rich. While that’s a problem today, it’ll be a boon to Oasis in the future as oil continues to rebound.
Additionally, the small-cap energy stock is considering either a sale or IPO of its midstream unit in the Bakken. By forming a master limited partnership (MLP), OAS should be able to realize higher cash flows from its gathering systems. That should provide an incremental boost to OAS shares in the long term.
All in all, it seems that investors have thrown OAS stock out with the bathwater.
[5]When it comes to energy stocks, Denbury Resources Inc. (NYSE:DNR) has always been an oddball.
That’s because the firm isn’t a traditional driller of oil or natural gas. It’s the leading purveyor of enhanced oil recovery (EOR) drilling techniques. Basically, DNR goes out and buys up older fields from other energy firms, often on the cheap. It then uses carbon dioxide injections to help push remaining oil up through the wellhead.
The high risk of prospecting for new finds is non-existent at the firm. The problem is that carbon dioxide injections are relatively expensive and with oil down this far, DNR hasn’t been bringing in the dough as it once was.
However, DNR is still profitable and currently trades at a P/E of just 8.
More importantly, its operations continue to throw off some serious cash flows because it buys them cheaply. That also helps DNR pay a healthy 2.9% dividend. And with many energy stocks looking to sell off assets to stay afloat during the current environment, DNR should be able to pick up some quality and long-lived assets on the cheap.
For value-mined investors, Denbury could be a great play as oil prices recover over the rest of the year.
Perhaps the ultimate state of market confusion could be had in Ultra Petroleum Corp. (NYSE:UPL[9]).
Over the last year or so, UPL has tried to incorporate more oil into its production mix. That has many market participants thinking the energy stock is more akin to Range Resources Corp. (NYSE:RRC[10]) with its blend of wet gas and shale oil assets. So naturally, shares of UPL have sold off during the period of low oil prices.
However, the vast bulk — and I do mean vast — of UPL’s assets still remain dry gas. More importantly, those assets are dirt-cheap to drill on.
The key for Ultra is also that most of that production doesn’t come from hard-to-crack shale rock. The majority of its assets lie within Wyoming’s Pinedale gas fields. These more “traditional” vertical wells feature longer producing lives and much cheaper drilling costs to complete.
That’s made UPL a big-time profit machine with natural gas prices hovering in the $4.30 range.
For its latest earnings report, UPL managed to crush estimates with a profit of $1.36 per share. Analysts’ had predicted that the energy firm would only earn 49 cents per share. That gives UPL a P/E of under 7.
For investors looking for a beaten down natural gas play, UPL remains one of the best small-cap energy stocks to buy in this low price environment.
By Aaron Levitt | February 27, 2015
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities
Source:http://investorplace.com/2015/02/3-small-cap-energy-stocks-to-buy-oas-upl-dnr/#.VPNiT3zF9Gs
Smaller producers have been hit insanely hard as oil and natural gas have fallen. The basic idea is that while the giants can withstand sustained lower energy prices, many of these smaller producers can’t. That’ll lead to a wave of defaults, closures and even bankruptcies.
But not all small-cap energy stocks are going the way of the dodo. In fact, some continue to thrive in the new price environment. For investors looking for bargains among the oil price wreckage, these smaller stocks could turn out to be great long term bets.
Here are three small-cap energy stocks to buy today.
Small-Cap Energy Stocks To Buy #1: Oasis Petroleum Inc. (OAS)
If there’s one area of the shale revolution that can survive lower oil prices, it’s the Bakken. Featuring prolific reserves and one of the lowest costs of production in terms of shale, Bakken producers shouldn’t have any real trouble getting through the lower-priced environment.That’s why small-cap energy stock Oasis Petroleum Inc. (NYSE:OAS) could be such a great bargain. OAS has seen its share price fall a whopping 75% and now can be had for a price-to-earnings ratio of just 4.
For that low price, investors are getting one of the best producers in the region — particularly considering OAS’s relatively low cost of production. Oasis is still a profitable energy stock with oil down in this range.
Over the few years, OAS has managed to increase its reserves in the Bakken immensely via drilling and strategic acquisitions of smaller wildcatters. More importantly, those reserves are predominately oil-rich. While that’s a problem today, it’ll be a boon to Oasis in the future as oil continues to rebound.
Additionally, the small-cap energy stock is considering either a sale or IPO of its midstream unit in the Bakken. By forming a master limited partnership (MLP), OAS should be able to realize higher cash flows from its gathering systems. That should provide an incremental boost to OAS shares in the long term.
All in all, it seems that investors have thrown OAS stock out with the bathwater.
Small-Cap Energy Stocks To Buy #2:Denbury Resources Inc. (DNR)
[5]When it comes to energy stocks, Denbury Resources Inc. (NYSE:DNR) has always been an oddball.That’s because the firm isn’t a traditional driller of oil or natural gas. It’s the leading purveyor of enhanced oil recovery (EOR) drilling techniques. Basically, DNR goes out and buys up older fields from other energy firms, often on the cheap. It then uses carbon dioxide injections to help push remaining oil up through the wellhead.
The high risk of prospecting for new finds is non-existent at the firm. The problem is that carbon dioxide injections are relatively expensive and with oil down this far, DNR hasn’t been bringing in the dough as it once was.
However, DNR is still profitable and currently trades at a P/E of just 8.
More importantly, its operations continue to throw off some serious cash flows because it buys them cheaply. That also helps DNR pay a healthy 2.9% dividend. And with many energy stocks looking to sell off assets to stay afloat during the current environment, DNR should be able to pick up some quality and long-lived assets on the cheap.
For value-mined investors, Denbury could be a great play as oil prices recover over the rest of the year.
Small-Cap Energy Stocks To Buy #3: Ultra Petroleum Corp. (UPL)
Perhaps the ultimate state of market confusion could be had in Ultra Petroleum Corp. (NYSE:UPL[9]).Over the last year or so, UPL has tried to incorporate more oil into its production mix. That has many market participants thinking the energy stock is more akin to Range Resources Corp. (NYSE:RRC[10]) with its blend of wet gas and shale oil assets. So naturally, shares of UPL have sold off during the period of low oil prices.
However, the vast bulk — and I do mean vast — of UPL’s assets still remain dry gas. More importantly, those assets are dirt-cheap to drill on.
The key for Ultra is also that most of that production doesn’t come from hard-to-crack shale rock. The majority of its assets lie within Wyoming’s Pinedale gas fields. These more “traditional” vertical wells feature longer producing lives and much cheaper drilling costs to complete.
That’s made UPL a big-time profit machine with natural gas prices hovering in the $4.30 range.
For its latest earnings report, UPL managed to crush estimates with a profit of $1.36 per share. Analysts’ had predicted that the energy firm would only earn 49 cents per share. That gives UPL a P/E of under 7.
For investors looking for a beaten down natural gas play, UPL remains one of the best small-cap energy stocks to buy in this low price environment.
By Aaron Levitt | February 27, 2015
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities
Source:http://investorplace.com/2015/02/3-small-cap-energy-stocks-to-buy-oas-upl-dnr/#.VPNiT3zF9Gs
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