Fluctuating oil and commodity prices are a factor that is to be expected when trading energy stocks. Indeed, during the recent earnings season many companies, particularly the majors, took a hit from lower prices during the recently-ended quarter that were exacerbated by reductions in output and all sorts of maintenance issues at US refineries.
But the recent increase in unrest in North African countries like Egypt and Libya, both important to the global oil supply either through production or shipping, as well as concern about the future of the Federal Reserve's stimulus spending program, have seen crude prices higher in recent weeks. And with a number of companies now doubling down on US shale production, oil and gas stocks, and basic materials stocks in general, may provide a safer place to put one's money, at least for the short to mid-term, than former safe havens like gold and bonds.
The following five stocks have been selected from the basic materials sector based on a handful of criteria: market-share (small cap or larger); a high dividend yield (greater than five percent, and compared to the industry average of 2.33 percent) suggesting the possibility that the company is confident enough in its operations to provide relatively big returns to shareholders; a low price-earnings multiple of less than 15 (against the industry average of 54.9), suggesting that the stock has been undervalued or overlooked by investors. Furthermore, all five companies’ stocks have been given an average rating of “buy or better” by analysts.
BP plc (BP) – With a market cap of $131.56 billion, the infamous BP is still the 5th largest oil major on the face of the planet. The company maintains a healthy return rate of 5.2 percent and has a relatively low price-to-earnings multiple of 5.14. Shares are currently trading for $41.51, up 3.54 percent in 2013.
Alliance Resource Partners LP (ARLP) – Alliance Resource Partners operates coal mines throughout the US in states like Kentucky, Maryland, West Virginia, and Indiana. The $2.89 billion market cap company is one of the largest metals and minerals companies in both the US and the world. The company is currently trading at 11.73 times earnings, and offers a 5.9 percent dividend yield. Shares are at $78.23, up nearly 42 percent on the year.
Natural Resource Partners LP (NRP) – The $2.18 billion market-cap Natural Resource Partners is a coal miner operating in Appalachia, the Illinois Basic, and the Western US. Also one of the US’s leading mining companies, NRP is trading at 10.86 times earnings, with a considerable 11 percent rate of return. Shares are going for $19.88, and have advanced over 15 percent year-to-date.
Pacific Coast Oil Trust (ROYT) – With a market cap of $681.38 million, Pacific Coast Oil Trust is not as well-known as its larger peers among oil and gas independents. That said, the company has a low price-to-earnings ratio of 9.92, and offers an attractive 10.5 percent dividend yield. Shares are trading for $17.66, up nearly 8 percent on the year.
Hi-Crush Partners LP (HCLP) – The $341.99 million Hi-Crush partners produces monocrystalline sand that is a key ingredient in the hydraulic fracturing process by which energy reserves are extracted from shale formations, and provides general services to the fracking industry as a whole. The company has a P/E ratio of 8.23, and offers shareholders a 7.8 percent yield on dividends. Shares are trading for $24.44, and have gained nearly 75 percent so far this year.
[Image: a BP station in Zaneseville, Ohio. Courtesy of Wikimedia Commons]
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