Friday, June 28, 2013

Three Oil Stocks to Consider

Oil prices have remained strong but a few oil company stocks have taken a dip.  This presents investors with the potential for a solid investment opportunity.  One contributor has tracked and analyzed this opportunity, coming up with three oil company stocks that you might want to consider.

Warren Resources, Inc. (WRES) was trading for close to $3 just days ago, but the market decline has pushed it down to the $2.50 level which has historically been a great buying opportunity since the stock has bounced off that level multiple times in the past year. Since November of 2012, the market and this stock have seen volatility, but in about 6 different selloffs since then, this stock has always been a buy around the $2.50 to $2.60 level.

The company is profitable and it has been growing reserves over the past few years. For example, the latest 10-k filing shows that total net proved oil and natural gas reserves in millions of barrels of oil equivalent (MBoe) grew from 21,617 in 2010, to 22,273 in 2011, to 24,919 as of December 31, 2012. That's a jump of about 20% in just a couple of years and since around 85% of its acreage is currently undeveloped, there could be substantial future growth prospects in terms of reserves and production growth.

ConocoPhillips (COP) shares have also experienced a sharp pullback in recent days but this appears to be yet another buying opportunity. Not long ago, this stock was trading for $64 per share, but the market decline has pressured it back down to just $60. I consider this stock to be in the "buy zone" because it is still in a solid uptrend as evidenced by the chart below, and at an ideal entry point. As the light blue trendline shows, this stock is now at the low end of the recent trading range and yet it still remains in a positive uptrend. That is what makes this stock worth buying now.

ConocoPhillips shares appear to be a low-risk way to gain exposure to oil, and a higher than average dividend. It currently yields about 4.4% and the company has been raising the dividend over time. For example, in 2008, the quarterly dividend was 47 cents per share, but due to consistent increases, it now pays 66 cents per quarter. That is a dividend growth rate of about 50%, in just 5 years.

ConocoPhillips has been reporting strong financial results. For the first quarter of 2013, it earned $2.1 billion, or $1.73 per share. Some of the highlights include: First-quarter total production of 1,596 MBOED. Eagle Ford, Bakken and Permian combined production were up 42% when compared to first quarter 2012.
NGP Capital Resources Company, Inc. (NGPC) shares were trading for about $6.75 just a few days ago, however, the market pullback has punished many stocks, especially dividend-payers. The stock is currently just above the $6 level and it appears to be in the "buy zone" now.

Back in May, the shares suffered a similar sell-off, and then went right back up to over $6.80 per share. The shares seem to be finding support again at the $6 level, and if that is the case the stock could be putting in a very bullish "double bottom" now. The recent pullback seems excessive and investors who have been panic-selling dividend stocks in the past few days, might soon regret it. Even if the 10-Year Treasury Bond now yields about 2.5% (instead of 2%), it still is not enough to pay the bills for most investors. Meanwhile, the sell-off in this stock has pushed the yield to about 10.5%. Hold this stock for the next five years and you might have well over 50% in gains from the dividend payout. Buy a Treasury Bond that yields 2.5%, hold it for five years and you will be lucky to have 12.5% returns. Plus, while bonds cannot grow earnings, a company like this could be positioned to increase the dividend in the future.

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