Each of these stocks in the oil and gas sector can be purchased for less than their book value. Each of these has a price/earnings ratio of 10 or less at a time when the p/e of the market as whole is 21. Each one trades on the New York Stock Exchange every day.
Stocks trading below book with low p/e’s are being avoided for a reason. It might have to do with a lack of belief among analysts that earnings can continue to grow. Or it might have to do with a general belief among investors that other sectors stand to grow faster. It might be some combination of those 2 and something else.
Whatever it is, these stocks are beginning to show up on screens designed to uncover the type of value situations described by Warren Buffett’s teacher at Columbia, Benjamin Graham in his classic works on valuation analysis.
Vaalco Energy is trading at a 15% discount to book value with a price/earnings ratio of 1.13.
The reason for the low valuation appears to be a very poor recent quarter-to-quarter earnings report. On the other hand, last year’s earnings were very good and the 5-year track record is positive.
Vaalco has zero long-term debt and the current ratio is in the green. Average daily volume at 327,000 is light for an NYSE stock so price swings may be more volatile than more actively traded issues. No dividend is paid.
Ennerplus is Canadian-based and now selling at a 2% discount from its book value.
With a price/earnings ratio of a mere 5, the company is coming off a very good year of earnings and a very good 5-year earnings performance. The most recent quarter-to-quarter came in red and is obviously a concern.
Enerplus’ long-term debt is less than shareholder equity. The company continues to pay a 1.45% dividend. Note that the stock is now selling for about half the price of one year ago.
Ring Energy is trading with a price/earnings ratio of 10 and at only 32% of its book value.
Now that is a scary looking weekly price chart — this stock has been unloaded steadily. The Midland, Texas-based company is having a negative earnings year — but the 5-year record is quite good.
Shareholder equity is greater than long-term debt. The current ratio is slightly in the red. No dividend is paid. The short float is very high at 14% which tells us that some investors really don’t like the stock.
On the other hand, if ever forced to cover those shorts could support quite a rally.
SandRidge Energy is headquartered in Oklahoma City and having a very bad earnings year. Lack of earnings would be the correct description.
So the stock has sold off to the point where it’s now valued at just 27% of its book value. The price/earnings ratio is 8. Long-term debt remains less than shareholder equity but the current ratio is slightly into the red. This is another with no dividend.
The 5-year record of earnings remains good despite this last year’s drop. Average daily volume for SandRidge Energy is a low 308,000 shares so it might be susceptible to greater volatility than your average holding.
No guarantees exist for investors looking for value and this type of analysis is not for everyone. Again, stocks trading below book with low p/e’s are likely to be experiencing issues requiring much further investigation into the causes and whether problems might be short or longer-term.