Will These Energy Stocks Bounce Back?
However hard the market slams a stock, there's always the chance it'll come bouncing right back. We'll consult our Motley Fool CAPS community to find shares on the rebound, examining one specific sector of the economy in search of companies with rising CAPS ratings.
There are 285 stocks listed under "energy" in the CAPS' screener, of which only a dozen carry well-respected four- and five-star ratings. Those accolades mean our 180,000 CAPS members are confident that these stocks will beat the market in the months ahead, but let's see what members are saying about the ones below:
CAPS Rating Today (out of 5)
52-Wk. Price Change
Est. 5-Yr. Growth Rate
|C&J Energy Services (NAS: CJES)||*****||$16.93||(40%)*||20%|
|Enerplus (NYS: ERF)||****||$17.83||(38%)||14%|
Source: Motley Fool CAPS. *CJES went public July 29, 2011.
International and financial worries still grip the market, but with the S&P 500 rising almost 3.2% over the last 12 months it may be surprising to learn that CAPS energy stocks have climbed nearly as much, rising 4% in that same time span. So let's take a closer look at why investors think these two companies that exceeded the market and their industry won't be jumping from the frying pan into the fire now that the markets are on a roll again.
A fractured future
A new U.S. Geological Survey report may be the catalyst the hydraulic fracturing business needs to begin a recovery. Under the gun from environmentalists and activists who charge that the process is causing problems from polluted groundwater to earthquakes, I noted the other day that Heckmann (NYS: HEK) is feeling the pressure since the USGS says it's not the fracking that's shaking things up, but rather the disposal of wastewater from the process that's the root cause.
While Halliburton (NYS: HAL) and BJ Services are affected by the fracking debate, being the largest services companies in the space means they're financially equipped to deal with disruptions. C&J Energy Services, at just a fraction of the size of Halliburton, is more susceptible to harm from limitations that might be imposed, as fracking services accounted for 81% of its revenues. It has six fracking fleets that it's expanding by 50% as demand from Anadarko Petroleum and EOG Resources, two of its biggest customers, continues to grow.
CAPS member MonkeyPick says that short-sellers have been weighing in on the stock but they're overlooking some key drivers of future growth that may lead to a squeeze: "I think the thing they're not figuring in is that those fleets are mobile, and can be deployed to work in the oil fields in fairly short order. If C&J maintains their margin, and can maintain the contract sales of their expanding fleet, then there's no reason to believe they won't make the profit targets for this year and next."
I agree C&J is undervalued and have previously marked it to outperform the indexes, but add it to your own watchlist to see if the fracking debate continues to splinter the stock, and let us know in the comments section below when you think it will rebound.
Stop digging the hole
A monthly payout and a tasty yield north of 12% haven't been enough to keep investors around as shares of independent Canadian oil and gas firm Enerplus continue to drop to new lows. With assets in Canada's oil sands, as well as the important Bakken and Marcellus shale formations in the U.S., Enerplus has a rich portfolio, but one that's feeling the pinch of a roiled natural gas market.
Like many in the space, Enerplus increased production despite conditions that suggested it ought to be doing otherwise. Now natural gas prices have fallen through the $2 level, with Henry Hub spot-trading at $1.87 and NYMEX prices at $1.95 per million BTUs. Natural gas drillers are now in full retreat with EnCana down 40% in the past year, Chesapeake Energy down 44%, and EXCO Resources (NYS: XCO) down 69%. They've all slammed the brakes on new drilling and the number of active rigs has fallen by 29%, though it's not enough to offset the new additions to storage that keep inventories well above their five-year average.
I've rated Enerplus to underperform the market on CAPS because the industry has yet to gain control of the wheel. The old saw that advises you to stop digging when you find yourself in a hole would seem to apply here, but OldPyro says it's doing just that by shifting to oil and natural gas liquids: "Replacing production. Shifting production toward oil and NGL. Lots of acreage to develop. Good dividend."
Add Enerplus to the Fool's portfolio tracker and let us know on the Enerplus CAPS page whether you think it will be able to sustain its dividend.
The ball's in your court
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At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Heckmann.Motley Fool newsletter serviceshave recommended buying shares of Chesapeake Energy and Halliburton. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.