Dow Jones Industrial Average lost only about 600 points from the recent high but energy stocks have lost anywhere from 15% to 60% depending on the quality of stock and issues they are faced with. The issue surrounding the energy sector is not the one of shortage but problem of plenty. US shale gas / oil production has glutted the market so much that US is now being called as world's largest producer of oil and oil price has come down from above $100 per barrel to $85. Investors and hedge fund managers believe that this is going to be the new normal oil price for a while and have already exited some of the leading names in the energy sector. Fund managers are always judged based on their fund's performance against the benchmark or index, hence constrained to act on short term volatility. But individual investors who don't face that pressure might take this opportunity to add some quality stocks to the portfolio. Demand for oil is going to be as good as the demand for food and I don't see oil price remaining at $85 or less forever. The price will increase in a year or two and all these stocks that are depressed now will rock again and will give better returns than stocks that are trading at their 52 week peaks.
Oil price decline not only impacted the companies in the oil industry but also the solar industry. Since increased oil supply and lower price will make solar power costly, companies like First Solar, Sun Power, SolarCity etc. have lost all the gains they made in the last year or so. IMF predicts slowing growth globally and if the market corrects more next week, then all these stocks that are already depressed will decline more and that will give better opportunities for investors who can live through the volatility for the next couple of years. I was searching for few quality energy stocks to buy and came up with a list of 10 stocks to keep close watch on.
1. National-Oilwell Varco, Inc. (NOV) : Current Price : $70
National Oilwell Varco, Inc. is a provider of equipment and components used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the oil and gas industry. Looking at the balance sheet, the company has minimal debt and positive net cash accounting for debt.
Book Value : ~ $50
Dividend : $1.84 (2.6% Yield)
Current PE: ~ 13 & Forward PE: ~ 10
Annual Revenue: $22.9 Billion
Net Income: $2.35 Billion
Cash : $ 3.9 Billion
Debt : $3.1 Billion
Debt / Equity Ratio : 14%
Market Cap : $30 Billion
The company is one of the leaders in this segment and growth is in high teens. Considering the strong fundamentals, current price itself is in the buy range but in order to give some margin of safety, I would closely watch and any price around $60 should be capitalized upon.
2. Schlumberger Limited (SLB): Current Price: $93
Schlumberger is a technology, project management and information solution provider in the gas & oil field industry and with a market cap of $120 billion, you can't look beyond this if you are looking for a good large cap stock.
Book Value : ~ $31
Dividend : $1.60 (1.72% Yield)
Current PE: ~ 18 & Forward PE: ~ 14
Annual Revenue: $46.4 Billion
Net Income: $6.8 Billion
Cash : $ 6.7 BillionDebt : $11.8 Billion
Debt / Equity Ratio : 33%
Market Cap : $120 Billion
Schlumberger is the leader in this industry and the management is targeting for an EPS of around $10 in 2017. Current weakness is a good opportunity to double the investment in the next few years time.
3.Halliburton Company (HAL): Current Price: $54
Halliburton too is a provider of services and products to the oil field industry and is a direct competitor to Schlumberger.
Book Value : ~ $17
Dividend : $0.60 (1.1% Yield)
Current PE: ~ 14 & Forward PE: ~ 11
Annual Revenue: $29.5 Billion
Net Income: $2.12 Billion
Cash : $ 2.4 BillionDebt : $7.8 Billion
Debt / Equity Ratio : 58%
Market Cap : $46 Billion
Any decline from here is definitely an opportunity.
4.Baker Hughes Incorporated (BHI): Current Price : $57
Baker Hughes is another company with good fundamentals in oil services industry.
Book Value : ~ $41
Dividend : $0.68 (1.2% Yield)
Current PE: ~ 14 & Forward PE: ~ 11
Annual Revenue: $22.3 Billion (Last Year)
Net Income: $1.1 Billion (Last Year)
Cash : $ 1.16 BillionDebt : $4.5 Billion
Debt / Equity Ratio : 25%
Market Cap : $24 Billion
Few other names to look into are, Helmerich & Payne, Oceaneering International, Core Laboratories, and Chesapeake Energy Corporation.
Current weakness in oil price impacted the solar industry too and some of the names I am closely watching are First Solar, Solar City and Sun Power.