The wave of new oil shale drilling has made the prospects of a plethora of smaller oil exploration companies very bright. The following are a few of the companies that might bring you outsized gains in the next year:
Triangle Petroleum Corp (TPLM) engages in the acquisition, exploration, and development of unconventional shale oil resources. It has approximately 72,000 net acres in the North Dakota Bakken/Three Forks oil play. Plus it has 413,000 net acres in the Maritimes Basin of Nova Scotia. The prolific Bakken is its gem at the moment.
Approach Resources Inc. (AREX) is an oil and gas explorer and producer. It has 140.400 net acres in the Permian Basin; 4,400 net acres in Cotton Valley; 79,800 net acres in the Mancos Shale in New Mexico; and 40,400 net acres in the New Albany Shale in Kentucky. An interesting point is that Yale University held 97,053 shares of AREX at the end of Q2 2011. It had added 18,477 shares to its position during the quarter. Yale is considered a knowledgeable and conservative investor.
Stone Energy Corp. (SGY) is an independent oil and natural gas company. It engages in the acquisition, exploration, development, and operation of oil and gas properties located in the Gulf of Mexico and the Appalachia region. SGY has 74,200 net acres in the Marcellus Shale (Appalachia). The entirety of the acreage is believed to be in the core, over pressured area of the Marcellus play. It has a Joint Venture with Atinum in part of this area (part of the 99,500 gross acres). It has 92,000 net acres of undeveloped plays in the Rocky Mountain Region. It has 65 active properties and 102 primary term leases in the Gulf Coast Basin.
Forest Oil Corp. (FST) is an independent oil and gas company. It engages in the acquisition, exploration, development, and production of oil, natural gas, and natural gas liquids primarily in North America. It has 113,000 net acres in the Eagle Ford. It has 48,000 net acres in the Wolfcamp Shale oil play. It has 101,000 net acres that are prospective for various Granite Wash formations. It has approximately 169,000 net acres in the East Texas/ North Louisiana area. This includes Cotton Valley, Haynesville, Bossier, and other formations. It has 131,000 net acres in the Deep Basin in Alberta and British Columbia. It has 41,000 net acres in the Peace River Arch in Alberta.
Analysts currently expect all four of these companies to gain more than 50% in price in the next year. Let’s look at some of the fundamental financial data to flesh out the overall picture of them. The data are from TDameritrade and Yahoo Finance.
| Stock | TPLM | AREX | SGY | FST |
| Price | $5.86 | $19.99 | $26.30 | $20.57 |
| 1 yr. Analysts’ Target Price | $10.36 | $31.53 | $41.43 | $32.38 |
| % Gain Forecast | 77% | 58% | 58% | 57% |
| PE | N/A | 43.55 | 9.15 | 19.44 |
| FPE | 14.65 | 17.23 | 6.83 | 11.89 |
| Avg. Analysts’ Opinion | 1.4 | 2.0 | 2.2 | 2.2 |
| EPS Growth in 2011 | 102.30% | 89.70% | 77.40% | -27.70% |
| EPS Growth in 2012 | 3900.00% | 56.80% | 9.10% | 44.20% |
| 5 yr. EPS Growth per annum | N/A | 33.80% | 8.00% | 8.67% |
| Market Cap. | $251.64M | $568.52M | $1.26B | $2.30B |
| Enterprise Value | $140.35M | $672.05M | $1.74B | $3.95B |
| Price/Book | 1.18 | 1.68 | 2.33 | 1.53 |
| Price/Cash Flow | -- | 15.57 | 3.14 | 5.89 |
| Cash/share | $2.85 | $0.03 | $1.71 | $4.39 |
| Beta | 1.69 | 1.19 | 2.86 | 1.51 |
| Short Interest as a % of Float | 6.16% | 19% | 8.15% | 5.97% |
| Total Debt/Total Capital (mrq) | 0% | 21.34% | 51.84% | 57.67% |
| Quick Ratio (mrq) | -- | -- | 1.23 | 0.96 |
| Interest Coverage (mrq) | -- | -- | 47.51 | -- |
| Return on Equity (ttm) | -16.22% | 4.13% | 28.55% | 8.66% |
| EPS Growth (mrq) | 66.22% | 280.44% | 103.09% | 15.41% |
| EPS Growth (ttm) | -249.58% | 2,640.01% | 186.14% | -64.94% |
| Revenue Growth (mrq) | 1,459.17% | 121.38% | 39.67% | 14.44% |
| Revenue Growth (ttm) | 681.38% | 71.15% | 2.20% | 5.43% |
| Annual Dividend Rate | -- | -- | -- | -- |
| Gross Profit Margin (ttm) | 79.72% | 86.63% | 76.93% | 76.78% |
| Operating Profit Margin (ttm) | -2,028.78% | 20.58% | 30.06% | 35.36% |
| Net Profit Margin (ttm) | -2,013.59% | 14.66% | 18.64% | 13.94% |
TPLM looks like a great investment. It has an average analysts’ predicted 1-year price gain of 77%. It has no debt, relatively low short interest, and the start on the promise of great EPS and revenue growth. Further, it has a 3900% forecast growth rate for 2012, and an Enterprise Value that is roughly 56% of the Market Cap. Usually it's nearer the other way around. It has no debt. TPLM looks like it could easily become a four bagger or more within a few years.
AREX seems to be a bit bigger company with many of the same attributes as TPLM. It still has a great long-term growth forecast, but being more developed it has a much better profit margin profile.
SGY is bigger. It is a slower grower. However, it trades at a much lower multiple. It is a good investment. Plus it looks like it will hold up a better in a down market, if such a market occurs.
FST has some great fundamentals. However, it has some weak ones too such as its predicted negative EPS growth for 2011 of -27.70%. Further, its chart shows it has been in a downtrend since Feb. 2011. I try to avoid buying stocks in a downtrend.
From a technical standpoint each of the stocks has a broken its uptrend. FST’s trend is a downtrend now. It is best to stay away from it for now. TPLM, AREX, and SGY have broken charts, but any or all of the three could recover to renew their uptrends. All three have started to recover from their recent oversold states. All look like there is substantial upside yet to come.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TPLM, AREX over the next 72 hours.
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