7 Undervalued Independent Oil & Gas Stocks That Know What to Do With Shareholder Cash

Michael Teague |

With the average price-to-earnings ratios of the New York Stock Exchange and the benchmark Standard & Poor’s 500 index hovering around 19, give or take, some estimates that put the average P/E ratio of the independent oil and gas industry at around 56 is strongly suggestive of the fact that more than a few companies are trading for more than they are worth.

What this says about the US shale boom is by no means simple. However, the production estimates for gas in 2014 are pointing to oversupply, which could be an indication that some of the primarily natural gas plays, including many companies that have so far managed to capitalize off of higher prices resulting from the brutally cold winter currently hitting large swathes of the US, are in for a rough ride as the weather improves.

Of course, this is essentially educated speculation because the situation depends on variables other than the weather, or worries about overstock. Indeed, one must factor in, among a number of other things, the price of crude, whose climb back to $100 per barrel in recent weeks could be a game-changer.

Whatever happens, investors looking to play independent oil and gas via stocks will not be wanting for options. Consider the following tickers, selected based on their high return-on-equity rates (above 30 percent), meaning that the companies are making the best use of shareholder cash, as well as for their below-average P/E ratios (below 15), a sign that they are being overlooked by the market, and are thus available relatively cheap for the time being.

 

Delek Logistics Partners LP (DKL)

Market-Cap: 806.41 million

Price: $33.55

ROE: 69.70 percent

P/E: 9.87

Performance (YTD): +7.33 percent

 

SandRidge Permian Trust (PER)

Market-Cap: $705.60 million

Price:$13.44

ROE: 31.80 percent

P/E: 5.92

Performance (YTD): +13.42 percent

 

Sandridge Mississippian Trust II (SDR)

Market-Cap: $498.74 million

Price: $10.03

ROE: 34 percent

P/E: 4.27

Performance (YTD): +12.31 percent

 

Gastar Exploration Ltd. (GST)

Market-Cap: $317.20 million

Price: $5.53

ROE: 68.60 percent

P/E: 7.68

Performance (YTD): -20.09 percent

 

Whiting USA Trust II (WHZ)

Market-Cap: $245.64 million

Price: $13.35

ROE: 31.70 percent

P/E: 4.80

Performance (YTD): +1.37 percent

 

Sandridge Mississippian Trust I (SDT)

Market-Cap: $202.02 million

Price: $9.62

ROE: 50 percent

P/E: 1.97

Performance (YTD): +4 percent

 

PrimeEnergy Corp. (PNRG)

Market-Cap: $118.36 million

Price: $49.01

ROE: 38.20 percent

P/E: 10.17

Performance (YTD): -2.95 percent

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
GST Gastar Exploration Inc 1.27 -0.05 -3.79 698,422
SDT SandRidge Mississippian Trust I of Beneficial Inte 1.36 -0.07 -4.90 81,273
PNRG PrimeEnergy Corporation 51.50 0.00 0.00 0
SDR SandRidge Mississippian Trust II representing Bene 1.39 0.00 0.00 227,114
DKL Delek Logistics Partners L.P. representing Limited 26.75 0.80 3.08 92,701
WHZ WHZ n/a n/a n/a 0
ARBU American Business Crp 0.03 0.00 0.00 0

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