Gurus and Insiders Continue to Buy Energy Stocks

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Mar 12, 2015
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With oil currently priced under $50 a barrel, gurus and insiders at eight energy companies are taking advantage of plunging stock prices to buy company shares, according to GuruFocus’ Double Buyspage.

Certain sectors within the energy industry can be safer to invest in, like companies that service oil wells, according to Chuck Royce (Trades, Portfolio) of Royce Funds.

“We have always favored service companies, guys that are out there servicing the wells, providing the equipment for the wells, providing maintenance, providing all sorts of intelligence for the wells,” Royce said in an interview last month. “Those are the areas we are likely to be adding to.”

And indeed, six gurus, including Royce and Paul Tudor Jones (Trades, Portfolio), purchased Carbo Ceramics (CRR, Financial) during the fourth quarter, along with 11 of the company’s insiders. All together, the gurus and insiders purchased 214,963 of Carbo’s shares.

Carbo supplies ceramic proppant, fracture simulation software, fracture design, and engineering and consulting services, which it sells mainly to operators of oil and natural gas wells.

GuruFocus rates the company’s business predictability as an excellent 4.5 out of 5 stars. The DCF model, which relies on earnings consistency, estimates a fair value of $32.39. The stock currently trades at $34.37, giving a -6% margin of safety. The stock price has declined 72% over the past year, representing a good time to buy into the company for when energy prices rise in the future.

Carbo has a comfortable current ratio of 4.37, which indicates the company can cover its short-term obligations. Its balance sheet also carries no long-term debt. The current P/E ratio is 14, while the P/S ratio is 1.3.

Two gurus — PRIMECAP Management (Trades, Portfolio) and Ronald Muhlenkamp (Trades, Portfolio) — added to their holdings in Rex Energy (REXX, Financial), as well as six company insiders, for a total of 504,300 shares bought.

Rex is an oil and natural gas company operating in the Appalachian and Illinois Basins. The stock has declined 77% over the past year and currently trades at $3.95, with a P/E ratio of 53.48 and P/S ratio of 0.7.

Over the past 10 years, Rex had three profitable years in 2006, 2010, and 2012. The chart below shows the company’s net income over the years. In addition, current liabilities outpace current assets by about $18 million on the balance sheet.

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In the past three months, 11 insiders purchased shares at Mid-Con Energy Partners (MCEP, Financial), whose stock has declined 74% over the past year. Jim Simons (Trades, Portfolio) also initiated a new holding in the company during the fourth quarter. A total of 91,000 of the company’s shares were purchased in the past three months.

Mid-Con Energy acquires, explores for, and develops oil and natural gas properties in North America.

Over the past year, the stock has declined 74%, and currently trades $5.76 with a P/E ratio of 5.8 and P/S ratio of 1.01. When comparing the price to the Peter Lynch earnings line, the stock is undervalued.

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For Q4 2014, the company reported net income of $0.1 million, a large drop from $9.3 million in the year-ago quarter.

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