NEW YORK (TheStreet) -- There are several companies that are deeply affected by the recent decline in energy prices. While the 10% decline in crude oil month-to-date is capturing most of the headlines, natural gas prices have also fallen 8% so far in October.
As evidenced by the recent decline in stock prices, this pain has been especially concentrated in energy stocks trading under $10. This group contains some of the more highly levered names that had made big bets on the continued growth of domestic exploration and production.
With that in mind, we're going to take a look at four names today and help readers gauge which of these could be oversold and due for a bounce, compared with which ones might not survive an extended period of low energy prices.
First up is Halcon Resources (HK - Get Report) , which is down about 20% year-to-date and currently changing hands around $3.07. About 85% of the company's production is leveraged to oil, where management has hedged more than 70% of its exposure for 2015.
Halcon is scheduled to report third-quarter results on Nov. 10. In the meantime, the company has piled up a lot of debt on its balance sheet. At the end of the latest quarter, the company's net debt stood at a sizable 2.3x of total equity.
Despite management's hedging strategy Halcon has above-average risk because of its hefty debt load. In a period of sustained lower energy prices, the company's financial health would be considerably stressed and we would avoid the shares at current levels.
Next is Magnum Hunter (MHR) , which is trading around $4.50 and has lost 38% year-to-date. About 60% of the company's production is natural gas and management targets hedging about 50% of its forward commodity exposure. In addition, about 40% of Magnum Hunter's revenue is in midstream gathering and processing operations, which are also less sensitive to commodity prices.
In the meantime, the company's net debt stands at 1.1x total equity. Management has been selling non-core assets to improve liquidity and may eventually explore alternatives to maximize the value of its midstream assets.
While Magnum Hunter is not our top pick in the space, its diversified business model does help to insulate it from lower energy prices. We believe company is a viable trading vehicle for readers looking to speculate in the likely continued volatility in this group. Magnum Hunter will announce third-quarter results on Nov. 7.
Next is SandRidge (SD - Get Report) , which is a holding in the Stocks Under $10 portfolio. The stock has not escaped the energy sell-off in 2014, losing 35% year-to-date and recently changing hands around $3.90.
That said, the company stacks up relatively well against its peers in a couple of key metrics. First, management has hedged more than 70% of oil exposure for 2015, which is the highest of these four names. SandRidge's production is currently about half oil and half natural gas, of which management has hedged less than 20% of its 2015 exposure.
Also, while the company has its fair share of debt, the net value is just 0.78x total equity, which is again relatively low in comparison to some of its peers. CEO James Bennett has been at the helm a little over a year and since he's been there, the focus has been on growing production while cutting costs.
We'll get the next update on SandRidge's operations, along with the third-quarter results, on Nov. 5. In the meantime, the company appears better positioned than most of its peers to handle the downturn in energy prices. If the environment does stabilize and management continues to execute its strategy, we believe the stock can move back up toward the mid-single digits over time.
Finally, there's Exco Resources (XCO) , which trades around $2.90 and has lost 43% of its value year-to-date. What stands out most about the company is that it pays a quarterly dividend of 5 cents a share (about a 7% yield).
That said, we believe the payout is far from secure, as management has only earned enough to cover the dividend once in the past five quarters. This included the third-quarter results reported on Oct. 28, where Exco earned just a penny a share and sales missed consensus analyst estimates.
About 90% of the company's production is natural gas and only recently did management beef up its hedging activity. Exco also has a sizable debt load, the net amount equal to 3.5x total equity. While management has sold non-core assets and cut costs in an attempt to improve liquidity, we believe the company is the most at risk of these four companies of not surviving a prolonged downturn in energy commodity prices.
The canary in the coal mine for this stock is the dividend, which will likely be cut before the end of the year. In the meantime, we would avoid Exco at current levels.