07 September 2005

About time I looked at some energy stocks...

My friend Dan recently discussed with me his belief that the energy sector is the place to be with oil prices and Katrina potentially causing a downturn in the rest of the US economy. Dan surprised me with his investing knowledge and experience, since we usually focus on more important issues, like poker, obscure musical acts, and the Phils. So with his encouraging words, I thought it was about time I examined some energy stocks.

Fortunately, the IBD came through with another piece today by Nancy Gondo, Energy Stocks Still Rising, And Some Near Buy Point. Several energy stocks are mentioned as worth watching, including World Fuel Services (INT), Western Gas Resources (WGR), Bois d'Arc Energy (BDE), Andarko Petroleum (APC), and Oil States International (OIS). Additionally, after finding out that OIS was recently named the #9 stock on Forbes.com's Top 100 Mid-Cap Stocks, I noticed #4 was Unit Corporation (UNT), so I added it to this quick-and-dirty research list. First, let's look at the cold hard numbers for each of these companies with their IBD and CNBC Stock Scouter scores:

INT - Earnings Per Share (EPS) 93, Relative Price Strength (RS) 91, Indsutry Group Relative Strength (GRS) A+, Sales+Profit Margins+ROE (SMR) B, Accumulation/Distribution (Acc/Dis) B
WGR - EPS 94, RS 93, GRS A+, SMR B, Acc/Dis A+
BDE - EPS 95, RS 86, GRS A+, SMR A, Acc/Dis B
APC - EPS 95, RS 84, GRS A+, SMR A, Acc/Dis B-
OIS - EPS 97, RS 95, GRS A+, SMR B, Acc/Dis A+
UNT - EPS 93, RS 87, GRS A+, SMR A, Acc/Dis A+

INT - 7
Pro - Earnings growth in the past year has accelerated moderately compared to earnings growth in the past three years. Positive
The ratio of INT's price-to-earnings multiple to its five-year growth rate is slightly below the average of all stocks in the StockScouter universe. Positive
Con - The price-to-earnings multiple is close to the average for all stocks in the StockScouter universe. Neutral
Shares are being heavily sold by financial institutions. Neutral for a small company like INT

WGR - 5
Pro - The StockScouter measure of relative price change and consistency is very high. Very positive
Previous day's closing price for WGR was significantly above its 50-day moving average. Very positive
Con - The price-to-earnings multiple is higher than the average for all stocks in the StockScouter universe. Negative
Shares are being heavily sold by financial institutions. Neutral for a large company like WGR

BDE - N/A

APC - 8
Pro - The ratio of APC's price-to-earnings multiple to its five-year growth rate is slightly below the average of all stocks in the StockScouter universe. Positive
The price-to-earnings multiple is lower than average for all stocks in the StockScouter universe. Positive
The StockScouter measure of relative price change and consistency is very high. Very positive
Con - Shares are being heavily sold by financial institutions. Neutral for a large company like APC

OIS - 5
Pro - Earnings growth in the past year has accelerated moderately compared to earnings growth in the past three years. Positive
The StockScouter measure of relative price change and consistency is very high. Very positive
Con - The price-to-earnings multiple is close to the average for all stocks in the StockScouter universe. Neutral
Two or more executives, directors or major shareholders sold a large number of shares recently. Very negative

UNT - 10
Pro - Earnings growth in the past year has accelerated moderately compared to earnings growth in the past three years. Positive
The StockScouter measure of relative price change and consistency is very high. Very positive
The price-to-sales multiple is significantly higher than the average for all stocks in the StockScouter universe. Very positive for a medium- to large-sized company like UNT
Con - The price-to-earnings multiple is close to the average for all stocks in the StockScouter universe. Neutral


Here's some background and additional financial data I mined from Marketwatch.com:

INT - The Group's principal activity is to market marine and aviation fuel services. It operates in two segments: Marine Fuel Services and Aviation Fuel Services. Marine fuel services segment consists of marketing marine fuel and related services to a broad base of international shipping companies. Aviation fuel services segment consists of extending credit and providing around-the-world single-supplier convenience, 24-hour service and competitively priced aviation fuel and other aviation related services. Aviation related services include fuel management, flight plans, weather reports, ground handling and flight permits. These services are provided to passenger, cargo and charter airlines. The Group operates in the Untied States, Singapore, the United Kingdom and other foreign countries. During 2004, the Group acquired Tramp Holdings Limited. The gross margin, the percentage retained by the company of each dollar generated is 1.20%. The profit margin, the percentage net income for each dollar of sales is N/A.

WGR - The Group's principal activities are to design, construct, own & operate natural gas systems & facilities for the processing & treating of natural gas & natural gas liquids. The Group operates in four segments: gathering, processing & treating, exploration & production, marketing & transportation. Gathering, processing & treating segment connects oil & gas wells to the gathering systems for delivery to processing or treating plants. Exploration & production segment develops & explores natural gas to enhance & support the existing gathering & processing operations. Marketing segment buys & sells natural gas & NGLs in the wholesale market. Transportation segment transports natural gas through regulated pipelines for producers & energy marketers. The Group's operations are conducted in gas-producing basins in the Rocky Mountain, Mid-Continent & southwestern regions of the United States. The Group acquired properties in the San Juan Basin of New Mexico in October 2004. The gross margin, the percentage retained by the company of each dollar generated is 14.03%. The profit margin, the percentage net income for each dollar of sales is 3.84%.

BDE - The principle activity of the Company is exploration, development and production of oil and gas in the Gulf of Mexico. As of December 31, 2004, the Company had proved reserves of 305.3 billion cubic feet of natural gas equivalent and owned 104 oil producing and natural gas wells in the federal and state waters of the Gulf of Mexico. The gross margin, the percentage retained by the company of each dollar generated is 47.62%. The profit margin the percentage net income for each dollar of sales is -81.79%.

APC - The Group's principal activities are the exploration, development, production and marketing of oil and gas. It operates in three segments: Oil and Gas Exploration, Marketing and Trading and Mineral business. Oil and Gas segment finds and produces natural gas, crude oil, condensate and natural gas liquids. The Marketing and Trading segment is responsible for selling natural gas production as well as purchased volumes of third-party gas and oil. The Minerals segment finds and produces minerals in several coal, industrial minerals and trona (natural soda ash) mines. The Group's major areas of operations are located in the United States, primarily in Texas, Louisiana, the mid-continent and Rocky Mountain regions, Alaska, Gulf of Mexico, Canada, Algeria, Guatemala, Venezuela and other International areas. On 12-Aug-2004, the Group acquired Access Northeast Energy Inc.The gross margin, the percentage retained by the company of each dollar generated is 65.83%. The profit margin the percentage net income for each dollar of sales is 31.92%.

OIS - The Group's principal activity is to provide specialty products and services to oil and gas drilling and production companies. The Group is into designing and manufacturing a range of products for offshore platforms, subsea pipelines, defense and general industrial applications. The products and services includes flexible bearings and connector products, subsea pipeline products, marine winches, mooring systems, rig equipment, blowout preventor stack assembly, integration, testing and repair services, fixed platform products and services. The Group also provides its well site services that range from catering and remote site accommodations to hydraulic well control and rental equipment. Regionally the Group operates in the Gulf of Mexico, U.S. onshore, Canada, West Africa, the Middle East, South America and Southeast Asia. On 01-Feb-2005, the Group acquired Elenburg Exploration Company Inc. On 04-May-2005, the Group acquired Stinger Wellhead Protection Inc.The gross margin, the percentage retained by the company of each dollar generated is 17.90%. The profit margin, the percentage net income for each dollar of sales is 7.26%.

UNT - The Group's principal activities are contract drilling of onshore oil and natural gas wells and the exploration, development, acquisition and production of oil and natural gas properties. The Group explores and produces oil and natural gas primarily in the natural gas producing provinces of Oklahoma and Texas areas of the Anadarko and Arkoma Basins, the Texas Gulf Cost and the Rocky Mountain regions.The gross margin, the percentage retained by the company of each dollar generated is 33.71%. The profit margin the percentage net income for each dollar of sales is 19.46%.

Phew. Now out of the torrent of information above, what sticks out to me? Well, I already marked that in bold.

Looking at the IBD scores, the lagging RS of BDE (86), APC (84), and UNT (87) says to me that these stocks could be a bit cheaper to buy than their higher scoring brethren. These three also scored A grades for SMR.

The CNBC Stock Scouter scores give additional general guidance: BDE doesn't rate as it's a recent issue. WGR and OIS lag, while APC scores an impressive 8, and UNT a 10.

Reviewing gross and profit margins, APC has the best figures, with UNT close behind, as would be expected from their A's for SMR. BDE has an impressive gross margin figure, but is not making a profit.

BDE is an oil and gas explorer, with reserves...in the Gulf of Mexico. Katrina affected the company's operations as detailed in the press release below, but the hurricane's effects seem to be relatively minimal.

Bois d'Arc Energy, Inc. Updates Status of Gulf of Mexico Operations After Hurricane Katrina
- PR Newswire
HOUSTON, Sept 06, 2005 /PRNewswire-FirstCall via COMTEX/ -- Bois d'Arc Energy, Inc. ("Bois d'Arc" or the "Company") today announced that it has further assessed the damage to its Gulf of Mexico production facilities and the impact of Hurricane Katrina on its Gulf of Mexico operations.

Production -- All but one of the Company's production facilities in the Gulf of Mexico sustained only minimal damage. Bois d'Arc's Main Pass block 21 facility suffered substantial damage and will require extensive repairs. The facility had averaged 110 barrels of oil per day, net to the Company's interest. The restoration of this facility, which was insured, could take up to a year.

Bois d'Arc has restored approximately 45 million cubic feet equivalent of natural gas ("MMcfe") per day of its production in the Gulf of Mexico after being shut-in for six days and expects to have production up to 60 MMcfe per day by September 15th. The remaining production of 19 MMcfe per day is awaiting the start up of operations of third party pipelines and processing facilities. The pipeline operators have not informed Bois d'Arc of how long these systems will be down. The Company expects that it will not resume full production for several months. The expected start up of an additional 18 MMcfe per day scheduled for the third quarter is expected to be delayed due to third party pipeline problems as well as and the availability of construction services due to the repair activity.

Drilling -- The Company has resumed drilling operations on three wells in the Gulf of Mexico utilizing the three rigs under long-term contract. None of the drilling rigs sustained significant damage. As a result of Hurricane Katrina and the previous hurricane activity this year, Bois d'Arc has experienced a total of 34 idle rig days.


If you're still with me after all this, APC is the most interesting stock to me, with UNT a close second. BDE is also interesting, but much more speculative. OIS, with its oil services operations, could be very busy with work in the Gulf of Mexico, but its stock has had a nice run, and its numbers are just not as good. APC, UNT, and BDE will all be added to the WershovenistPig Stock Watch List.

3 comments:

Puff Danny said...

Last week Vanguard posted a warning on investing too heavily in energy funds: https://flagship2.vanguard.com/VGApp/hnw/VanguardViewsArticlePublic?ArticleJSP=/freshness/News_and_Views/news_ALL_energycaution_08302005_ALL.jsp.

Their recommendation should not cause surprise. But energy stocks continued their climb last week (+2.3%), so is their advice premature?

If you already have energy investments, I don’t understand why you would pull out. The sector’s PEG Ratio has been consistent with the S&P 500 and I don’t see any downward pressure on oil prices. The market is so tight that the simple warning of a political or environmental event causes price fluctuations and stock increases. I am holding tight, enjoying the run, and waiting for a hybrid car manufacturer to hit the tipping point. At which point I will transfer every one of my energy holdings into that lucky company.

Puff Danny said...

Ben Stein's comments in today's NY Times sum it up pretty well: http://www.nytimes.com/2005/09/11/business/yourmoney/11every.html

Wershoven said...

My energy exposure derives from holdings in my Fidelty Canada fund. And I can tell, since it's up over 7% in less than a month. Ben Stein's op-ed mentioned Canada as a wonderful place to invest with their abundant natural resources, i.e. oil, oil sands, coal.

On the hybrid car manufacturer front, I'm thinking Toyota will hit the tipping point. People can't get enough of the Prius, and their nearest competitors on the hybrid front, Honda and Ford, are either too small or have junk bond ratings.