Until such time as the public moves in mass to electric vehicles, one of the things we do if we drive the car is fill up the tank. Filling up the tank meets an oil company – now days there are fewer and fewer companies that are vertically integrated such as Exxon but there are some. Investing in oil companies also can provide relatively stable income and capital gains as they are not making any more of it. The costs to drill wells goes up, but the rewards are still be great.

Sean Puglese CFA of Wickham Investing Counsel recently looked at US oil stocks with an eye for value and safety.

To start with he and his associate Allan Meyer looked through Bloomberg for companies with a market capitalization of $ 10 billion or more. This number lowers the number of companies to be examined for market capitalization is stock price multiplied by number of shares outstanding.

Dividend yield is calculated as the projected annualized dividend payments over the next year divided by the current share price. All companies on the list must be projected to pay a dividend over the next year.

Price to Cash Flow is the current share price divided by the projected cash flow over the next year. All industries have popular metrics and this one is popular in the oil business, because of the high level of costs related to noncash items such as depreciation. The lower the number, the better the value.

EV/EBITDA is known as the takeover multiple. It is the enterprise value divided by earnings before interest, taxes, depreciation and amortization. A lower number reflects value and takeover potential

Debt to equity ratio – a smaller ratio indicates lower levels of debt. Generally a number near 100 imp   lies the ability to pay debt, lower when concerned about safety margins is better.

Company             Ticker      Market Cap       Dividend        P/CF           EV/             Debt/Equity

(US $ Bil)           Yield %                             EBITDA                %

Exxon Mobil       XOM-N       387.9                 3.24               11.64            15.59                 24.15

Chevron              CVX-N         197.5                 4.15                 8.78            12.72                 27.95

Occidental Pete OXY-N           58.1                3.98                12.05           13.76                 31.98

ConocoPhillips  COP-N           52.4                2.38                 7.11           13.15                    74.75

EOG Resources   EOG-N           45.4               0.77               15.12           18.69                  56.31

Phillips 66             PSX-N          39.3               3.38                  8.96            9.16                   37.37

Anadarko Pete     APC-N          28.5               0.45                9.17             13.41                 127.55

Pioneer Natural   PXD-N         26.0               0.05               14.82            19.04                 37.75

Valero Energy       VLO-N         22.4               5.23                  4.85             3.54                   34.12

 

Linking to dividend paying stocks, on Mr. Pugliese’s list there was 18 stocks, however you get the idea of why ExxonMobil is the a staple stock among institutions. Under the list if you started with a market capitalization of 20 billion rather than 10 billion it furthers narrows the list. There are always many choices in the marketplace and narrowing the focus to a couple will not make you a day trader, however all companies do go through cycles just as the oil companies earlier this year went down. The better ones have regained and increased the value because they make money. The lower prices was an opportunity to pick up companies, collect the dividend and allow time to increase the price of the shares, which during the lazy hot days of summer seems ideal.

There are more questions than answers, till the next time – to raising questions.