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
ROE: 69.70 percent
Performance (YTD): +7.33 percent
SandRidge Permian Trust (PER)
Market-Cap: $705.60 million
ROE: 31.80 percent
Performance (YTD): +13.42 percent
Sandridge Mississippian Trust II (SDR)
Market-Cap: $498.74 million
ROE: 34 percent
Performance (YTD): +12.31 percent
Gastar Exploration Ltd. (GST)
Market-Cap: $317.20 million
ROE: 68.60 percent
Performance (YTD): -20.09 percent
Whiting USA Trust II (WHZ)
Market-Cap: $245.64 million
ROE: 31.70 percent
Performance (YTD): +1.37 percent
Sandridge Mississippian Trust I (SDT)
Market-Cap: $202.02 million
ROE: 50 percent
Performance (YTD): +4 percent
PrimeEnergy Corp. (PNRG)
Market-Cap: $118.36 million
ROE: 38.20 percent
Performance (YTD): -2.95 percent