From Barron's interactive edition; hedge fund (Value Holdings) manager Tim Curro has this to say regarding our favorite sector:
.
Given his years as an oil and gas analyst, it's a tad ironic that Curro has been a
sparse purchaser of energy stocks. It's a commodity business, he explains,
and many an oil-and-gas outfit has too much debt and too little free cash flow.
But recently the compelling dynamics in the industry got the best of him. "Oil
inventories have come down," he observes, "while worldwide demand is
improving more rapidly than expected." Ditto natural gas. "Demand has been
pretty strong, while deliverability has been declining." And, as for drilling, "the
rig count is still down significantly."
Energy stocks now make up 9% of Curro's fund. Besides Newfield, he owns
Enron Oil & Gas, McMoRan Exploration and Noble Affiliates. But "definitely
the cheapest," he avers, is Chieftain International. He bought shares recently
as high as 18.
Based in Edmonton, Alberta, Chieftain operates primarily in the shallow
waters of the Gulf of Mexico. Curro likes the company's "strong production
profile," its veteran management, its sturdy finances and its stock buybacks
("unusual for an oil company").
Chieftain's drilling success in the Gulf,
over the past four years, has been
impressive, ranging from 56% to 65%,
Curro reports. Known for "hitting
singles," the company may have some
larger finds, particularly in the areas of
High Island and South Marsh Island.
The stock, insists Curro, is very cheap.
"Here's a company with one of the best
balance sheets in the industry and you
can buy it for 4.5 times '99 EBITDA
[earnings before interest, taxes, depreciation and amortization] and 3.5 times
EBITDA for 2000. Chieftain's average multiple of EBITDA, from '96 through
'98, he notes, was about 6.
Not a single analyst, according to First Call, bothers to follow this company.
Yet over the past five years, it has grown sales at an average annual
compounded rate of 12%, and earnings per share at an even snappier 16%. It
recently reported a record quarter and record backlog. In the fiscal year
ending this month, earnings are expected to hit $2.65 a share, up from $1.80
in fiscal '98.
Yet at 26, the stock sells for only 10 times earnings.
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