The S&P 500 has fallen 7.16 percent from its peak. Although it feels like a large drop, the energy sector has fallen nearly three times as much. The Energy Select SPDR Fund (XLE) is now in bear territory with it being down 20.24 percent since its peak in late June. In an effort to find stocks that can bounce back strong from the malaise in the energy sector and hold their own in case of a prolonged downturn, I used the GuruFocus All-In-One Screener to screen for the following criteria:
- Industry: Energy
- Financial Strength: Minimum of 7/10
- Predictability: Minimum of 4/5
This simple screen to find financially strong, predictable energy companies resulted in only six stocks. The financial strength score measures how strong a company’s financial situation is. A company that ranks high is likely to withstand any business slowdowns and recessions. It is based on the following factors:
- The debt burden that the company has as measured by its interest coverage.
- Debt to revenue ratio —Â the lower, the better.
- Altman Z-Score
Business predictability is based on the complete 10-year financial data and trading prices of the companies. The predictability of the companies is ranked based on the consistency of their revenue per share and EBITDA per share over the past 10 fiscal years. While back-testing the stocks for the time period of January 1998 to August 2008, 4 star stocks had average annual returns of 9.8 percent over the past 10 years, and only 8 percent of the stocks had a loss at the end of the period. The 5-star stocks gained 12.1 percent and only 3.3 percent of the stocks had a loss at the end of the period. During that same time period, the S&P 500 had average annual gains of only 2.7 percent.
Here are the financially strong, predictable energy companies that have the ability to withstand a recession and can produce a solid comeback:
Pembina Pipeline Corp (PBA) has a business predictability ranking of 4/5 and financial strength of 7/10. The stock has a market cap of $12.78 billion and a P/E ratio of 38.50. It is a Canadian company that provides transportation and midstream services for the energy industry in North America. The stock is down 20.25 percent from its 52-week high of $48.89 on 9/4/2014. Its dividend is yielding 3.87 percent and pays monthly. Jim Simons (Trades, Portfolio) of Renaissance Technologies holds 678,300 shares, representing 0.21 percent of the shares outstanding.
TransGlobe Energy Corp (TGA) has a business predictability ranking of 4/5 and financial strength of 7/10. The stock has a market cap of $400.9 million and a P/E ratio of 6.10. The Canadian company is engaged in the exploration, development, and production of oil and gas properties. The stock has been under additional pressure with the company primarily operating in Egypt. The stock is down 44.08 percent from its 52-week high of $9.51 on 11/5/2013. Its dividend is yielding 3.94 percent. The stock is held by Jim Simons (Trades, Portfolio) of Renaissance Technologies and Chuck Royce (Trades, Portfolio) of Royce & Associates. Simons holds the largest position of the two with 49,600 shares, representing 0.06 percent of the shares outstanding.
Badger Daylighting Ltd (BADFF) has a business predictability ranking of 4/5 and financial strength of 8/10. The stock has a market cap of $890.7 million and a P/E ratio of 22.40. The Canadian company provides non-destructive excavating services for contractors and facility owners in the utility and petroleum industries in Canada and the United States. The stock is down 38.48 percent from its 52-week high of $39.09 on 4/1/2014. Its dividend is yielding 1.34 percent. The dividend is lower due to the company still being in its growth phase. Ron Baron (Trades, Portfolio) is holding about 266,000 shares in the Baron Growth I fund, representing 0.38 percent of the shares outstanding.
CNOOC Ltd (CEO) has a business predictability ranking of 4.5/5 and financial strength of 7/10. The stock has a market cap of $74.53 billion and a P/E ratio of 8.20. The company was incorporated in Hong Kong. It is the largest producer of offshore crude oil and natural gas in China and one of the largest independent oil and gas exploration companies in the world. The stock is down 20.10 percent from its 52-week high of $209.00 on 10/18/2013. Its dividend is yielding 4.48 percent. The stock is held by eight gurus we follow, with Sarah Ketterer (Trades, Portfolio) of Causeway Capital Management holding the largest position of 97,781 shares, representing 0.02 percent of the shares outstanding.
RPC Inc (RES) has a business predictability ranking of 5/5 and financial strength of 8/10. The stock has a market cap of $3.6 billion and a P/E ratio of 18.70. It provides oilfield services and equipment to independent and major oilfield companies in exploration, production, and development of oil and gas properties, domestically and in selected international markets. The stock is down 34.71 percent from its 52-week high of $25.15 on 7/23/2014. Its dividend is yielding 2.44 percent. The stock is held by eight gurus we follow, with Mario Gabelli (Trades, Portfolio) of GAMCO Investors holding the largest position of 6.45 million shares, representing 2.95 percent of the shares outstanding.
Weir Group Plc (WEIGY) has a business predictability ranking of 5/5 and financial strength of 7/10. The stock has a market cap of $7.37 billion and a P/E ratio of 13.90. The Glasgow-based company designs, manufactures, and supplies products and engineering services for the minerals, oil and gas, and power and industrial markets worldwide. Its products include pumps, hydrocyclones, valves, dewatering equipment, wear-resistant linings, rubber products, and screening machines. The stock is down 26.56 percent from its 52-week high of $23.53 on 7/21/2014. The dividend is yielding 2.26 percent. The stock is not held by any of the gurus we follow.
Screening for high business predictability and financial strength scores is a way to find strong companies that can ride out a downturn in the markets and come back strong. The GuruFocus All-In-One Screener can be used to find plenty of investing opportunities. It is the most complete fundamental screener on the web. Give it a try to see what opportunities you can find.
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