3 Companies to Play the Energy Renaissance
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Unless you have been living under a rock, you probably know there is a lot of money being spent on energy production and discovery. Whether you are looking for a company that provides the products to help companies drill for oil, or a company that is involved in the production of natural gas and oil, investors should have some exposure to the energy business. To try and find some attractive candidates in this industry, I used the Fool.com CAPS Screener to search for companies with real growth in both revenue and income. I didn't want companies that are too small since it is difficult to build a great business from the ground up. However, I also didn't necessarily want a huge conglomerate that everyone already knows about. To find a good middle ground, I recently ran a screen with the following criteria: mid-cap size, 10% revenue growth and 20% EPS growth in the last 3 years. This screen returned the following companies that looked attractive: El Paso Pipeline Partners LP (NYSE: EPB), HollyFrontier (NYSE: HFC), and Oil States International (NYSE: OIS).
El Paso Pipeline Partners LP:
If you are looking for a solid play on the expansion in spending on mid-stream companies, El Paso Pipeline Partners could be a good place to start. The company not only meets our criteria for having 10% revenue growth and 20% EPS growth in the last three years, but also pays an impressive almost 6% yield. The company isn't expected to grow as fast in the future, with analysts calling for just 5% earnings growth. However, in the mid-stream business, size matters and El Paso has large interests in multiple pipelines in Wyoming and Colorado to Georgia and South Carolina. While the company's long-term debt is relatively high at 68.82% of total assets, the company produces strong free cash flow of about $100 million per quarter. Income hungry investors should add El Paso to their Watchlist today.
This company operates at the part of production just before El Paso as they are in the production and exploration business for natural gas and oil. While the company doesn't pay quite the dividend yield of El Paso at 1.61%, this payout is well covered with a free cash flow payout ratio of just 31.43%. The stock sells for a cheap P/E ratio of just under 7 times projected earnings, but this I'm sure has to do with the negative 2.1% EPS growth that analysts are calling for. That being said, the company has increased its operating cash flow by over 500% in the last three years. In addition, HollyFrontier maintains a relatively low level of long-term debt at just under 14% of total assets. This low level of debt, and free cash flow of nearly $1 billion last year, could make for a dynamic investment. Add HollyFrontier to your customized Watchlist to keep up with developments.
Oil States International
If you are an investor looking for more of a growth oriented investment, Oil States International could be a company worth looking at. This company provides the products and services that make oil and gas drilling possible. While the company doesn't pay a dividend, analysts are calling for 15% earnings growth and the company may surprise to the upside. Over the last four quarters, the company has beaten analysts estimates four times by an average of 10.83%. The company has needed to make a lot of asset and liability adjustments which make its cash flow a little difficult to determine. If you just look at net income and depreciation, the company has increased its adjusted operating cash flow by over 180% in the last three years. Oil States also sports a relatively strong balance sheet with about 28% long-term debt versus total assets. Growth investors could benefit from this “pick and ax” provider to the oil and gas industry. Jump start your research into this company by adding it to your Watchlist.
You can see whether you want a fast growing company or one to provide you with good current income, opportunities abound in the oil and gas industry. Use the above information as a starting point for your own research to see if one or all three of these companies deserve a spot in your portfolio.
MHenage has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend El Paso Pipeline Partners LP and HollyFrontier. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.