The market looks stretched here after a five month rally. One of the few sectors I am still positive on is energy as you can still find some reasonable valuations. Here are two picks that have "Strong Buy" ratings and also crossed their 200 day moving averages last week.
"HollyFrontier Corporation (HFC) operates as an independent petroleum refiner and marketer in the United States. It produces light products, such as gasoline, diesel fuel, jet fuel, and other specialty products." (Business Description from Yahoo Finance)
4 reasons HFC is a solid value at $32 a share:
- The company has a solid balance sheet with about $500mm in net cash and sells at 6 times operating cash flow.
- In addition to the "Strong Buy" rating from S&P, HFC is rated an "Outperform" rating with a $47 price target on the stock.
- The company has beat earnings estimates for the last two quarters and consensus estimates for for FY2012 have stop declining and started to go up again this week.
- The stock is selling at the very bottom of its five year valuation range based on P/B and P/CF and is selling at just over 5 times trailing earnings.
"Schlumberger Limited, together with its subsidiaries, supplies technology, integrated project management, and information solutions to the oil and gas exploration and production industries worldwide." (Business Description from Yahoo Finance)
4 reasons SLB is still a buy at $78 a share:
- SLB is an "Outperform" with a $92 price target on the stock in addition to the "Strong Buy" rating from S&P.
- The stock has an attractive five year projected PEG of under 1 (.68) which is a 50% discount to its five year average.
- Despite rapidly rising earnings and revenues, SLB has underperformed the S&P by approximately 12% over the last 52 weeks.
- SLB has a forward PE of under 14, which is a 30% discount to its five year average.
Disclosure: I am long SLB.
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