Merill has an interesting E&P comment out - link below:
askmerrill.com
Has BUYS on APA BR NBL UPR; nice commentary on APA as well.
Fwiw: I like UPR as my "balanced" play - guarandamnteed 50% mover ... and NBL is the most undervalued and with the risk of being a Nat Gas pureplay - has the accompanying volatility as a proxy on gas prices - BUT !!!!
1. NBL has cash flow per share - nearly 20% higher than BR this year & estimated for next; yet BR whom is also a proxy for & a pureplay on NG - is 50% higher than NBL here.
2. NBL has cfps equal to APA whom is also priced 50% higher and along with these stocks below is priced nearly half of their peers on this benchmark valuation metric:
OEI @ 3.0 x 2000 cfps - cheapest lg cap "dog of the Oilpatch" there.
UPR @ 3.4 x 2000 cfps
NBL @ 3.4 x 2000 cfps
compared to:
APC @ 11.2 x 2000 cfps
APA @ 5.2 x 2000 cfps
BR @ 6.3 x 2000 cfps
VRI @ 6.4 x 2000 cfps
and a historic sector average of 5-9 times cfps; with - 7 times being a mid cycle average multiple; that would put NBL near $45 for a double+ within 6 mos imho.
Simply; cfps multiples are near historic lows - while commodity prices are near historic highs ~ by definition; a market valuation anomaly - a gift horse buying opp.
Sorry; JQP & CPSMOis; but with the liquidity & Institutional interest in the large caps - at these valuation multiples; there is simply no reason to be in small caps other than a minor trading position, or two imho.
These are "once in a decade valuation metrics" - quote, unquote from Merrill Lynch...
No junkies needed, but if I fail to be able to push, pull, or in some cases drag your asses over the goal line on this one... it won't be thru lack of effort (VBG).
... how's that for hubris ?
final thought here:
Historically high commodity prices with historically low valuation multiples - found once in a decade if you're lucky.
$lider
The Picks:
Gas play:
NBL - leverage/margin in on ANY & ALL weakness from here; 10% from a 5 year low with NG prices supporting what would traditionally be 5 year high valuations. a CFPS valuation freebie with huge cap ex increases for 2000 from 1999 and leverage to their gas plant infastructure investments made this past year.
Balanced play:
UPR OEI PXD - own a basket with either weighting toward OEI for the "cheapest" multiple & huge offshore portfolio exploration upside, or UPR for their ususal strong institutional support, financial turnaround, conservative cap ex spending - allowing increases in 2000 for either further debt reduction, stock buy backs, acquisitions, or increased drilling.
Small Caps: I'd stay with these 3 other than short trading opps in other small caps as they arise.
HSE as a pureplay on NG and a ludicrously valued little cash machine - $6.18 - to $7 cfps forecasted for year 2000 and priced at $12-14 bucks of late & they own their market niche ! A great longterm growth play.
FST - great trader, now near $11 off of its recent high of $18, has a huge upside Canadian play unfolding etc.
RGO - small cap with a strong balance sheet - virtually unique in that respect, undervalued - oversold; strong Canadian & Intnl exposure, cheap by any valuation metric. |
