If you're looking for value in the traditional sense, which might be better -- bitcoins or certain oil and gas stocks? Let's take a look:
Energy stocks have not quite kept up with the market as a whole since the November election results. The main ETF that tracks the energy sector, XLE, has dropped from a peak of 78 in December, 2016 to its present level of 63. That's a decline of 20% in a short period of market action -- while other sectors have rallied substantially.
A contrarian investor might be considering this question: are there now value-type situations among oil and gas stocks? To see if that's case, I applied some simplified Graham & Dodd analysis and came up with 5 stocks that may qualify as potential candidates:
- Aegan Marine Petroleum Network -- they have a lot of long-term debt and the company recently took a significant earnings hit, but the stock is trading at a 60% discount to its book value. This indicates a problem, for sure, but right now a small dividend is being paid and the price/earnings ratio of about 7 is way below the market as a whole -- and below the average p/e of most energy firms. Aegan is headquartered in Greece, trades on the NYSE and has a short float of 20%.
- Boardwalk Pipeline Partners -- This pipeline company based in the USA is now trading at a 14% discount to book. The price/earnings ratio is 14. The long-term debt seems to be within reason. Earlier this year the stock was trading at 18 and now goes for 14.5 -- like many energy companies, the sell-off has been substantial. They're paying a 2.6% dividend. Boardwalk is 50% owned by insiders.
- Cenovus Energy -- this Canadian oil and gas exploration and drilling company trades at a 40% discount to book. It traded for 16 in December of 2016 and has sold off to a price of 8.29 this week. That's quite a drop -- likely due to a recent major earnings decline. The price/earnings ratio is 4.5 and, as of today, the dividend remains in place. The short float's at 2.7%.
- Diamond Offshore -- this big drilling and exploration company went for 22/share just 10 months ago and now trades for 12.55. At this level, it's priced at almost half its book value and the price/earnings ratio of 10 is low. As with many of these situations, the problem is earnings declines. The short ratio is high at 20% indicating that short sellers believe more downside may be in store.
- Seadrill Partners -- with a price/earnings ratio of 1 and trading at a 70% discount to book, this one suggests caution. The price has dropped from 5/share in February to 3.5 this week. The dividend payment comes to 12%, an unlikely-to-continue situation with the earnings decline this year. On the other hand, the short float is only 1.4% -- not that much. Seadrill is UK-headquartered
With the price of the cryptocurrency-based Bitcoin Investment Trust now trading at a 100% premium to its net asset value, according to The Motley Fool's Jordan Wathen, it's interesting to contrast that to these oil and gas sector stocks.
Each one of these energy-related companies is selling for less than book value and each has a price/earning ratio significantly lower than the S&P 500's -- these 2 metrics put them on the "might be value here" list. I'm not recommending purchase of any of these -- much more extensive research would be required.
But, it's a heads up in terms of value, especially when compared to current investment fads.
Financial metrics courtesy of Financial Visualization, finviz.com
