Petroleum Production Company Comparison
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Although some investors maintain the belief that an inverse correlation between oil and major markets exists due to increasing costs of transportation and production, recent analyses demonstrate that this held true only 40% of the time from 1990 to 2008. Instead, the relationship between the DOW and Crude Oil demonstrates a direct correlation more often than not.
Overall, global demand for petroleum is increasing and numerous investment opportunities exist for those seeking secutiry and stability. These benefits may be found in well-known supermajors such as Chevron and ConocoPhillips.
While these companies are integrated, or involved in upstream and downstream operations, it is the opinion of the author that investors seeking wider appreciation potential that also have a high tolerance for risk should seek petroleum production companies, or upstream corporations. These companies may present the most lucrative, albiet risky, returns. This brief comparison will analyze four such companies: Pioneer Natural Resources (NYSE: PXD); Ultra Petroleum (NYSE: UPL); Apache Corporation (NYSE: APA); and Berry Petroleum (NYSE: BRY).
P/E; Book; Dividend; Beta Comparison
|Company||Recent P/E||Book Value/Recent Price||Dividend Yield||Beta|
As is explicitly apparent, the betas for each of these companies are higher than the market on the whole. This fact substantiates my opinion that this industry can offer lucrative but risky returns.
Second, the dividend values for these securities are not especially alluring.
Finally, value-oriented investors may find the Book to current price and recent P/E valuations for APA as especially attractive.
APA is especially attractive on account of the fact that its P/E is near historic lows, and a recent $1.75bn acquisition of ExxonMobil's North Sea assets demonstrates that this company is seeking to offer an added measure of stability. Also, the fact that the recent price divided by the book value is a mere 1.22 bolsters its CV as a prime value play.
While APA may provide additional stability, UPL may offer greater potential returns overall for buy-and-hold investors. This is due to the company's recent discovery, acquisition, and potential development of 100,000 acres in Colorado.
All told, the four companies in this article are well-suited to risk-tolerant investors seeking wide appreciation. Those who prefer to play the safer side may want to consider adding APA to their portfolios, and those hungry for a handsome capital bounty may want to consider giving UPL a second look.
Fool blogger Maxwell Kirchhoff, MA, does not own shares in any of the companies mentioned in this entry.