Oil prices are often barometers on the economy; and the stock market to a lesser extent. While capital expenditures and drilling activity among domestic producers are going down, the tap is flowing among foreign oil and it’s going to be very difficult for spot prices to accelerate.
This makes the time horizon for expected returns among most oil investments all the more distant.
Naturally, there’s a lot more value among oil stocks these days. This was not the case until only recently. The problem, of course, is that virtually all resource-related equity securities trade off of the spot price. Therefore, pinning your hopes on a fast-growing producer is still just as much a bet on rising spot prices as it is on the company itself.
However, even with the stagnant oil prices, there are some attractive prospects for investors interested in oil to watch.
1. Kinder Morgan Inc. (NYSE/KMI)
On a number of occasions in these pages, we’ve considered Kinder Morgan Inc. (NYSE/KMI) as an attractive long-term opportunity in the oil patch for income-seeking investors. (See “Oil Prices: Where They’re Going and How to Profit From Them.”)
With a higher-than-average dividend yield and a strong pipeline and storage business, Kinder Morgan continues to boast good prospects for the rest of this decade.
2. The Greenbrier Companies, Inc. (NYSE/GBX)
I also like The Greenbrier Companies, Inc. (NYSE/GBX) as a sideways play on the domestic oil business. This company manufactures oil railcars among other large items. Newly mandated safety standards for oil railcars are a boon to the business.
3. Synergy Resources Corporation (NYSE/SYRG)
In terms of actual producers themselves, Synergy Resources Corporation (NYSE/SYRG) has a wide following among institutional investors. The stock has held up much better than its peer group.
This is a company that could easily be part of a takeover/merger with a larger rival. Annual revenues are currently estimated to grow approximately 30% this year over last, accelerating another 60% next year given current consensus.
The fact that the stock is sitting, trading in a range, is not unusual. But it didn’t go down much in price like so many other fast-growing, high-valued domestic producers. And it’s a telling indicator as far as I’m concerned. Synergy Resources has staying power.
4. Triangle Petroleum Corporation (NYSE/TPLM)
And then there’s Triangle Petroleum Corporation (NYSE/TPLM), which recently beat the Street with its latest quarterly financials.
This Denver-based company holds leasehold interests in the Williston Basin, North Dakota, and Sheridan and Roosevelt counties in Montana.
Fiscal fourth-quarter revenues ended January 31, 2015 almost doubled to $157 million. Average production more than doubled in fiscal 2015 to 11,441 barrels of oil equivalent per day.
This position is not expensively priced on the stock market. It’s trading in a range between $5.00 and $6.00 a share. It could turn out to be an interesting stock, especially if oil prices accelerate.
Near term, however, I don’t expect oil prices to be able to accelerate, because Middle Eastern oil is so high in volume. As a sector, however, the energy patch is much more attractive, valuation-wise. It’s a market sector with good turnaround prospects in 2016.