Energy stocks have had their shares of trials and tribulations
in 2012. Of the nine select sector SPDRs
, only the Utilities Select SPDR (NYSE:
) has performed worse than the Energy Select Sector SPDR (NYSE:
) this year.
The average return offered by Exxon Mobil (NYSE:
), Chevron (NYSE:
) and ConocoPhillips (NYSE:
) this year is just about 3.5 percent, well below the 13 percent
offered by the S&P 500. At the single stock level, at least
among the sector's giants, the performances have not impressed.
Even when factoring in the decent dividend yields of the
aforementioned trio, their returns still lag the broader
Missed production targets were the undoing of many major oil and
gas companies in 2012. A lethargic global economic recovery has not
helped matters, either. Perhaps due to the slowing production
growth seen by the major integrated oil names,
Goldman Sachs recently recommended investors
energy names because they offer more upside potential.
That advice also means evaluating some energy equities with
smaller market caps, but while the following names may be light on
market value, they are not light on upside potential in 2013.
Cobalt International Energy (NYSE:
) With a market value of $9.76 billion, Cobalt resides at the
higher end of the mid-cap spectrum. Market cap is not what makes
Cobalt compelling. Angola is. The African nation is an OPEC member
and vies with fellow cartel member Nigeria to wear the crown as the
continent's top oil producer. In other words, Angola is home to
bountiful oil reserves.
For those that are familiar with term "pre-salt" as it pertains
to Brazil, it also is relevant with Angola. The Angola pre-salt
investment theme is legitimate as the country's pre-salt fields
have been compared to Brazil's
It is Angola's pre-salt fields that have increased
Cobalt's allure as a takeover target
. Most recently, Chevron was mentioned as a potential suitor for
the company. Remember this: Goldman Sachs (NYSE:
) is a major Cobalt shareholder and it would not be surprising to
see the bank push for a takeover of the company.
Kosmos Energy (NYSE:
) Like Cobalt, Kosmos Energy is a direct play on the African oil
boom. The $4.75 billion company is one of the major producers at
Ghana's Jubilee Field, where it is
producing 105,000 barrels per day
. News of the Jubilee Field production prompted a recent spike in
shares of Kosmos, which are up 7.5 percent in the past month, but
the stock is down year-to-date.
In addition to the potential spoils of the Jubilee Field, Kosmos
has often been mentioned as a takeover with
Chevron recently being mentioned as a possible
. However, Kosmos takeover rumors are nothing new.
Exxon Mobil tried to acquire $4 billion worth of Kosmos in 2010,
but Ghana's government scrapped the deal. Then the company rejected
an offer from BP (NYSE:
) and China's Cnooc (NYSE:
) in 2011, indicating that Kosmos may not be as easily acquired as
some investors would like to believe.
Interestingly, private equity firms Warburg Pincus and
Blackstone Group (NYSE:
) backed the Kosmos IPO and are major shareholders in the company.
That factor alone increases the takeover chatter, but there are
hurdles to clear with Ghana's government.
Laredo Petroleum (NYSE:
) Down 22 percent year-to-date, Laredo Petroleum would arguably a
far more controversial name if this $2.2 billion company received
more attention from investors and the mainstream financial press.
The shares are pricey at 21.2 times next year's expected earnings
and trade at almost 77 times Laredo's cash per share. Then there is
the debt load. Laredo's long-term debt-to-equity ratio is 1.35.
The shares now trade around $17, the same price they cam public
at in December 2011. Although the company posted a third-quarter
loss, Laredo did increase
its revenue by nine percent and overall production
by 27 percent
. Laredo's oil output jumped 32 percent year-over-year.
Two-thirds of Laredo's production comes from the Permian Basin
in West Texas, where production is currently booming. The potential
2013 catalyst for Laredo comes in the form of the company's
operations at the Cline Shale in the Permian Basin.
"We believe the Cline Shale exhibits similar petrophysical
attributes and favorable economics compared to other liquids-rich
shale plays operated by other companies, such as in the Eagle Ford
and Bakken Shale formations,"
the company says on its Web site
. If that prediction proves even slightly accurate, Laredo could
offer significant upside.
(c) 2012 Benzinga.com. Benzinga does not provide investment advice.
All rights reserved.
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