NEW YORK (TheStreet) -- With Iran making the headlines by offering good deals to international energy companies, we decided to revisit the exploration and production energy sector.
Oil prices have stabilized at the $60 level since May, as a result of an increasing demand and a reduced growth in supply. A similar story can be told about natural gas drilling.
Given that energy prices will trade in the $60 range, there are still reasons to invest in these companies.
So, what are the best oil and gas exploration and production companies investors should be buying? Here are the top three, according to TheStreet Ratings,TheStreet's proprietary ratings tool.
TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Check out which oil and gas exploration and production companies made the list. And when you're done, be sure to read about which volatile aerospace and defense stocks to buy now. Year-to-date returns are based on June 19, 2015, closing prices. The highest-rated stock appears last.SYRG data by YCharts
3. Synergy Resources Corporation (SYRG)
Rating: Buy, B
Market Cap: $1.3 billion
Year-to-date return: -2.3%
Synergy Resources Corporation engages in the acquisition, development, exploitation, exploration, and production of oil and natural gas properties primarily located in the Denver-Julesburg Basin in northeast Colorado.
"We rate SYNERGY RESOURCES CORP (SYRG) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, expanding profit margins and notable return on equity. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 38.6%. Since the same quarter one year prior, revenues slightly increased by 3.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- SYRG's debt-to-equity ratio is very low at 0.26 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.34, which clearly demonstrates the ability to cover short-term cash needs.
- Net operating cash flow has significantly increased by 66.36% to $30.68 million when compared to the same quarter last year. In addition, SYNERGY RESOURCES CORP has also vastly surpassed the industry average cash flow growth rate of -53.28%.
- The gross profit margin for SYNERGY RESOURCES CORP is currently very high, coming in at 75.41%. Regardless of SYRG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SYRG's net profit margin of 19.61% significantly outperformed against the industry.
- The change in net income from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Oil, Gas & Consumable Fuels industry average. The net income has decreased by 9.9% when compared to the same quarter one year ago, dropping from $5.16 million to $4.65 million.
- You can view the full analysis from the report here: SYRG Ratings Report