5 Best-Performing Oil and Gas Stocks of 2010

Energy stocks have posted middling gains this year. But these have risen up to 73%.
By Jake Lynch ,

BOSTON (TheStreet) -- Oil and gas stocks delivered mediocre gains in 2010. The 35 S&P 500 oil and gas components delivered an average return of 16%, ranking seventh out of 11 industries. Yet, with crude oil above $90 a barrel, the group may outperform in 2011. Here is a look at the five best-performing oil and gas stocks of 2010. Several may continue to beat peers and the broader market. Below, they are ordered by 2010 return, from great to best.

5.

Rowan Companies

(RDC)

provides onshore and offshore drilling services to energy companies.

Fundamentals

: Rowan's 12-month sales have fallen 11%. Third-quarter net income dropped 14% to $67 million. Earnings per share fell 17% to 57 cents, hurt by a higher share count. Revenue grew 11%. The operating margin fell from 22% to 20%. Rowan held $1.1 billion of cash and $1.7 billion of debt at quarter's end, equal to an ample quick ratio of 1.7 and a debt-to-equity ratio of 0.5. Cash and equivalents soared 63% to $1.1 billion from the year-earlier balance.

Valuation

: Rowan's stock has surged 40% in 2010 and 10% in the past three months. Still, it's comparatively cheap. It trades at a forward earnings multiple of 14, a book value multiple of 1.1, a sales multiple of 2.3 and a cash flow multiple of 9.3, 41%, 63%, 25% and 50% discounts to energy equipment and services industry averages. Its trailing earnings multiple of 13 represents a 74% peer discount, but a 29% premium to the stock's five-year average earnings multiple of 12.

4.

National Oilwell Varco

(NOV) - Get Report

constructs and sells systems, components and products for drilling.

Fundamentals

: National Oilwell's 12-month sales have dropped 9.5%. Third-quarter profit ascended 4.9% to $404 million, or 96 cents a share, as revenue declined 2.5% to $3 billion. The operating margin remained steady at 20%, but exceeded the industry average of 18%. National Oilwell had $3.1 billion of cash and $870 million of debt the end of the quarter, equaling a quick ratio of 1.4 and a debt-to-equity ratio of 0.1, beating both industry averages.

Valuation

: National Oilwell's stock has risen 40% in 2010 and 55% in the past three months. Yet, it's relatively inexpensive. A trailing earnings multiple of 16, a forward earnings multiple of 17, a book value multiple of 1.7 and a sales multiple of 2.2 represent discounts of 67%, 31%, 41% and 29% discounts to industry averages. Its cash flow multiple of 30 reflects a premium, though, as does its PEG ratio, a measure of value relative to predicted growth, of 1.2.

3.

Sunoco

(SUN) - Get Report

refines and markets petroleum, commodity and petrochemical products.

Fundamentals

: Sunoco's 12-month sales have risen 20%. The company swung to a third-quarter profit of $65 million, or 54 cents a share, from a year-earlier loss of $312 million, or $2.68. Revenue increased 12% to $8.7 billion. The operating margin climbed out of negative territory, but remained shallow, at 0.9%. The balance sheet stored $1.1 billion of cash and $2.5 billion of debt at quarter's end, equal to a quick ratio of 0.8 and a debt-to-equity ratio of 0.9.

Valuation

: Sunoco's stock has advanced 50% in 2010 and 7.7% during the past three months. Over a three-year span, Sunoco has delivered annualized losses of 15%. It currently trades at a forward earnings multiple of 19, a book value multiple of 1.7, a sales multiple of 0.1 and a cash flow multiple of 3.2, 10%, 59%, 96% and 64% discounts to oil and gas industry averages. Its gross, operating and net margins are below peer averages. Still, rallying oil will abet refiner profits.

2.

FMC Technologies

(FTI) - Get Report

sells technology products, including production, processing and wellhead systems, to energy companies.

Fundamentals

: FMC's 12-month sales have dropped 6%. Third-quarter net income fell 12% to $81 million. Earnings per share dropped 9.6% to 66 cents, cushioned by a lower share count. Revenue decreased 12% to $960 million. The operating margin contracted from 13% to 12%. FMC held $512 million of cash and $579 million of debt at quarter's end, converting to a quick ratio of 1.1 and a debt-to-equity ratio of 0.5. The cash balance expanded 29%.

Valuation

: FMC's stock has soared 53% in 2010 and 36% in the past three months. It trades at a premium to energy equipment and services peer averages. Its forward earnings multiple of 26, book value multiple of 8.4 and cash flow multiple of 34 reflect premiums of 10%, 190% and 84%. Unlike comparable investments, which suffered amid below-trend crude oil and natural gas prices, FMC's stock has produced three-year annualized gains of 15%, beating U.S. indices.

1.

Pioneer Natural Resources

(PXD) - Get Report

is an oil and gas explorer, producing crude oil and natural gas.

Fundamentals

: Pioneer's 12-month sales have advanced 19%. Pioneer swung to a third-quarter profit of $112 million, or 93 cents a share, from a loss of $7.2 million, or 17 cents, a year earlier. Revenue stretched 15% to $471 million. The operating margin widened from 11% to 19%. Pioneer carried $78 million of cash and $2.5 billion of debt on its balance sheet at quarter's end, translating to a poor quick ratio of 0.5, but a reasonable debt-to-equity ratio of 0.6.

Valuation

: Pioneer's stock has surged 73% in 2010 and 32% during the past three months. It sells for a trailing earnings multiple of 21, a forward earnings multiple of 32, a book value multiple of 2.4, a sales multiple of 5.1 and a cash flow multiple of 9.4, premiums to exploration and production industry averages. In the past 12 months, the stock has more than doubled. It has delivered annualized gains of 22% since 2007. It remains a top energy growth play.

-- Written by Jake Lynch in Boston.

To see these stocks in action, visit the

5 Best-Performing Oil and Gas Stocks Portfolio

on Stockpickr.

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