As the Federal Reserve hints at tapering the bond buying program over the next year, cyclical stocks including energy exploration and production firms should become interesting buys. These stocks have underperformed the market rally over the last year as investors have piled into high yielding stocks as bond yields hit extremely low levels. Now that money should flood out of those stocks and bonds into growth stocks.
The main reason the Fed would stop bond buying would be a generally stronger economy, a situation that should benefit energy stocks that have underperformed. One group that should outperform in this rotation of money into growth stocks includes Halcon Resources Corp (NYSE:HK), SandRidge Energy Inc. (NYSE:SD), and WPX Energy Inc (NYSE:WPX) . These beaten down stocks not only offer the ability to rebound off weak trading, but the businesses could improve as economies around the world rebound sending oil and natural gas prices higher. Compared to the tech stocks previously covered, these stocks offer a riskier proposition as weak natural gas prices could hold the stocks down even during an economic recovery.
As the chart below shows, these stocks with the exception of WPX have dramatically under performed the market over the last year:
Halcon Resources Corp (NYSE:HK) counts one of the most successful management teams in the energy sector. CEO Floyd Wilson is well known for selling PetroHawk Energy to BHP Billiton Limited (ADR) (NYSE:BHP) near the top in the natural gas market back in 2011. After a few years, he has developed Halcon into a player in the Bakken, Eagle Ford, and Utica shale areas while the market has lost interest in energy producers. With a group of investors he bought RAM Energy in February 2012, but energy exploration and production firms have been out of favor during this period.
Analysts actually expect the company to earn around $0.65 next year making the stock attractive around $5.50. Naturally the level of earnings will ultimately depend on the price of oil and natural gas in 2014, but investors could do worse than bet on a leading CEO in the industry.
The company currently operates 17 rigs across its holdings and is producing 30,000 barrels of oil equivalent per day with 27 wells being completed or waiting on completion. The majority of the rigs are working in the Williston Basin and the El Halcon Resources Corp (NYSE:HK) portion of the Eagle Ford. Due to an aggressive acreage acquisition plan, analysts expect revenue to surge from $247 million in 2012 to an incredible $1.6 billion in 2014. With the stock down 47% in the last year, this aggressive growth plan has not benefited shareholders.
SandRidge Energy Inc. (NYSE:SD) has been universally hammered, as investors were frustrated with the constant shifts in strategy by the previous CEO. Tom Ward was forced out a few weeks back yet the stock trades near the all time lows below $5. In addition, the company hired a new CFO less than a week after changing the CEO. The key to the stock will be whether the new executives are able to turn the company around with a consistent plan that the investment community understands.