Looking for Bargains in Energy Carnage

Jim Cramer ran a good piece on Friday on how the market would benefit greatly if oil could just stabilize around current levels. I agree with him that if we could see crude find a bottom, equities would see a major headwind removed that has come with the sharp plunge in energy prices. The market could then quit worrying so much about bankruptcies in the oil patch and some of the other downsides to the quick plunge in oil prices since summer. It got me to thinking that it might be time to pick through some of the carnage caused by the recent decline in oil. It seems that quite a few concerns that count on demand from the oil and gas industry have been unfairly beaten up and some good bargains exist for patient long-term value investors. Flowserve (FLS), the maker of pumps, valves and other industrial goods is down by more than a third from its highs this summer. Investors have abandoned the stock as the company gets some 40% of its overall revenues from the oil and gas sector. But the vast majority of those orders come from the downstream and midstream areas of the sectors. Flowserve should be relatively unscathed by the major capital budget cuts at exploration and production concerns. Earnings should still increase in the high-single digits in 2015 and the stock is selling at a significant discount to its recent historical valuations. I also think Chicago Bridge & Iron (CBI) finally may be bottoming after being cut in half over the past six months or so. Technically, the shares look like they have been trying to put in a floor in the high $30s over the past month. The stock of this engineering and construction company that serves the energy industry certainly is cheap on a valuation basis at around 7x forward earnings. The stock is a play on increasing natural gas and oil production in the United States as it builds liquefied natural gas (LNG) facilities, including export terminals. The company is also involved in other parts of the energy complex, including constructing nuclear plants and refinery upgrades. The company has a record order backlog of more than $30 billion. This is more than two years of revenues at current run rate and 2014 was a record year for new orders, despite the plunge in oil in the back half of the year. In addition, three-fourths of that backlog is in the United States, diminishing possible currency impacts, which have been a source of turmoil in the market throughout 2015. The stock also sells for a steep discount against competitors like Flour (FLR) whose stocks have also suffered big declines recently. I couldn't end this article with one further shout-out to railcar maker Greenbrier Companies (GBX), which I have covered before and goes for a little more than 8x forward earnings. The company just reported solid earnings, gave encouraging guidance and continues to see its impressive order backlog grow. About 70% of new orders are from other areas than oil tank cars and will benefit as the economy continues to improve. New safety regulations around oil tank cars will trigger a huge retrograde and replacement cycle in that sector, even if oil production slows due to capital expenditure cuts this year. If crude is finally stabilizing, sentiment on all these stocks could improve markedly and quickly.

Looking for Bargains in Energy Carnage

These three stocks look promising.

Columnist Conversation

Wednesday on Real Money Pro

Pretty Incredible + Hard to Believe

This Weekend on Real Money

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.