Two Attractive Small-Cap Energy Stocks

 | Nov 08, 2013 | 2:00 PM EST
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There was one of the bigger downswings in the market on Thursday that we have had over the last few months as equities have grinded higher. I don't think it will be the last significant decline over the next few months. The market feels fully valued here with job and economic growth remaining tepid five years into a recovery.

This also means it is a good time to look at and revise our "shopping list" for bargains to pick up on the next pullback. Since today is "small-cap" Friday in this column, we will look at a couple of small unique plays within the energy ecosystem. Both are under the radar selections and each company reported solid earnings this week as well.

Vertex Energy (VTNR) is a leader in the aggregation, recycling and processing of distressed hydrocarbon streams. It takes these inputs to create higher value products. The company has an enterprise value of less than $70 million and insiders own more a third of the company.

Vertex just delivered its second consecutive stellar quarterly earnings report on Wednesday. It had earnings of 12 cents a share, 50% above the consensus estimates. Revenue also came in much stronger than expected.

The company also lifted forward guidance substantially as it has just completed its largest diesel project in its history. This project involved dismantling and decommissioning a fuel system facility. Vertex anticipates that additional similar projects will be an increasing part of its business.

The company is growing revenues at a solid 8% to 10% annual clip. The stock is selling at just under $3 a share and sells for around 10.5x forward earnings. Vertex receives scant analyst coverage. Only three analysts cover the stock and have price targets of $4 to $4.50 a share on VRTR. Finally, the company has a solid balance sheet and is well-positioned to benefit with the increasing regulations on the waste fuel market.

TETRA Technologies (TTI) is a diversified oil and gas services company. It provides a variety of products and services to the oil & gas industry including completion fluids and other well management services (An example is production well testing). The company has a market capitalization of just under $1 billion.

The company reported results earlier in the week that beat expectations nicely, both on the top and the bottom lines. Both earnings and revenues growth are expected to accelerate in FY2014. Revenue growth is projected to triple from this year's rather tepid 5% gains. Earnings are also expected to be up 40% over 2013's levels.

The stock sells at just over 12x forward earnings at these levels. Insiders have been net buyers of the shares in 2013. The company should benefit as demand for its services continues in an uptrend as the Gulf of Mexico returns to its pre-Macondo activity levels. The stock has had a nice run this year but I would be a buyer if it declines within an overall market pullback.

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