A Quick Pair of Energy Plays

 | Jul 20, 2012 | 2:00 PM EDT
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Oil rose Thursday for a seventh straight session to more than $92 a barrel, its highest level since mid-May. Tensions across the Middle East are as good an excuse as any: Israeli authorities are blaming Iran for this week's deadly bombing of an Israeli tour bus in Bulgaria. Meanwhile, Syria continues spiraling into civil war. Oil prices at least seemed to have bottomed (see chart below), and it looks like the momentum is to the upside right now.

Oil -- Daily
Source: Finviz.com

Given this, investment in the energy complex seems like a prudent bet. Although energy stocks have bounced back over the last month, they are still down from their highs earlier in the second quarter. The oil-services sector is approximately 10% off from its highs in the second quarter, and is lower by about 15% from its highs earlier in the year. Exploration-and-production equities have had a similar trend. Here are two stocks from the energy sector have low valuations, good growth prospects, some recent insider buying and that are substantially below analysts' price targets and book value.

Nabors Industries (NBR) contracts approximately 500 rigs for oil-and-gas land-drilling operations in the U.S. and internationally. Here are four reasons this stock is undervalued at $14 a share:

  • The stock is selling at the bottom of its five-year valuation range, based on its price-to-earnings, price-to-sales, price-to-book and price-to-cash-flow ratios.
  • The stock is cheap at just 72% book value and around 3x operating cash flow. A director made a $1 million purchase of new shares in May.
  • Nabors sells for 7x forward earnings, a significant discount to its five-year average of 12.9x.
  • It has a median price target of $21 from the 18 analysts that cover it, some 50% above the current stock price.

Swift Energy (SFY) develops and operates oil and natural gas properties, focusing on reserves in Texas, as well as onshore and in the inland waters of Louisiana. Here are four reasons Swift Energy is a bargain at under $20 a share:

  • Its median price target is $36 from the 13 analysts that cover it. That's more than 80% above the current stock price.
  • Shares are selling near the bottom of their five-year valuation range, based on Swift Energy's P/S, P/B and P/CF ratios.
  • Both revenue and earnings are expected to snap back in 2013, with sales seen rising north of 25%. Several insiders picked up more than $1 million in new shares in May and June.
  • Swift Energy sells for just 83% of book value and around trailing earnings. It has increased revenue at an average annual clip of 13% over the last decade.



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