2
3
1
4
6
8
5
7

Opus News & Insights

Observations on Poor Energy Companies (OPEC)
Tuesday, October 11, 2016

Given the recent run in crude prices in the wake of the real OPEC deciding to, at some point in the future, determine a way to freeze output at historically high levels, we decided to investigate how energy projections have changed for the small cap names in our universe.

Below is a summary of street earnings projections (for those energy names that have coverage, which is roughly 95%) as well as the LTM actual earnings.  We wanted to see which names have had positive earnings in the LTM, and which were projected to have positive earnings in the current quarter, current year, and 2017.

Below is a breakdown by sector of the positive earners:

opec

Given this analysis, we decided to take it a step further and look at valuations. On a LTM basis, the P/E (ex-negatives) for the energy sector came in at an average of 62.9x. Of the names with positive LTM earnings, there were only 10 with a LTM P/E below that of the R2K.

On a NTM basis, the P/E (ex-negatives) for the energy sector came in at an average of 51.8x. Of the names with positive NTM projected earnings, there were a total of 12 with a NTM P/E below that of the R2K.

The combination of the two groups (positive LTM earnings and positive NTM earnings with below market valuations) generated a total of five (5) names.

Those names are listed below:

opec

Given the P/E ratios for all but MTRX are higher on a NTM basis, we can easily deduce that earnings for the next 12 months are projected to be lower than for the prior 12 months. Moreover, short interest for three of the five exceeds 18%, with EPE at a staggering 52.9% short!

Simply put, if you adhere to a philosophy that is dependent upon positive earnings, earnings growth, and attractive valuations, owning energy in the small cap space is a nearly impossible task right now. While our underweight to Energy has recently hurt performance, we are process-oriented investors, and these speculative companies currently fail to make their way into our investment universe.

DOWNLOAD PDF »



 
 
Subscribe To Our Blog

Blog Categories

  • Opus Insights
    • 04/19/2017 - Interview with Adam Eagleston
    • 04/12/2017 - MicroCap Value Strategy Using
    • 04/10/2017 - Review of U.S. Small Caps - Ma
    • 04/07/2017 - Dividend Payer vs. Non Payer R
    • 04/07/2017 - Monroe Capital Is Ripe For A V
    • 04/03/2017 - Squeal Like a Pig? Not With WH
    • 03/24/2017 - ​Invest Like Zuckerberg, Not t
    • 03/03/2017 - Review of U.S. Small Caps – Fe
    • 03/01/2017 - Opus Capital Recognized as Top
    • 02/13/2017 - Review of U.S. Small Caps - Ja
    • 01/26/2017 - U.S. Microcaps Outperform in 2
    • 01/13/2017 - Small Caps Go Crazy in 2016
    • 01/12/2017 - Small Cap Rally Continues, Boo
    • 01/12/2017 - The Night is Always Darkest Be
    • 01/06/2017 - Review of U.S. Small Caps – De
    • 12/06/2016 - Review of U.S. Small Cap Value
    • 12/06/2016 - Oil Appreciation Day
    • 11/30/2016 - Opus Names Debra Gordon as Dir
    • 11/23/2016 - Opus Capital Recognized as Top
    • 11/22/2016 - Opus Capital: A 20-Year Retro
    • 11/11/2016 - The “Basket of Deplorables” Ra
    • 11/09/2016 - 2016 Election - The Morning Af
    • 11/08/2016 - Presidential Election 2016
    • 11/06/2016 - WSJ - "Junk Stocks" Strut, but
    • 11/04/2016 - Review of US Small Caps - Octo
    • 10/14/2016 - Living in a Material World
    • 10/13/2016 - Profit Owed to Leverage
    • 10/11/2016 - Observations on Poor Energy Co
    • 10/11/2016 - Independent Thinking Garners a
    • 10/05/2016 - Review of U.S. Small Caps - Se
    • 09/27/2016 - Review of U.S. Small Caps – Au
    • 09/19/2016 - Income Needs Have Insurers Loo
    • 09/01/2016 - Low Vol and Dividends a Crowde
    • 08/31/2016 - All Animals Are Equal, but Som
    • 08/26/2016 - Black Hole
    • 08/15/2016 - Review of U.S. Small Caps
    • 08/05/2016 - Robert Half International - a
    • 07/29/2016 - BGCP: Severe Undervaluation P
    • 07/13/2016 - Can Utilities Keep Going at Ma
    • 07/08/2016 - Review of US Small Caps
    • 06/30/2016 - Interest-ing Decisions Ahead f
    • 06/27/2016 - Negative Reality Bites
    • 06/04/2016 - Mallrats
    • 05/19/2016 - The Big Short (Interest)
    • 05/19/2016 - Energy and Oil Price Volatilit
    • 08/27/2015 - CHINESE CHECKERS - Volatility
    • 06/10/2015 - ​Black Gold, Texas Tea
    • 03/19/2015 - Don't "Yada Yada" Foreign Stoc
    • 02/17/2015 - Wealth Management Guide 2015
    • 02/16/2015 - 'Tis Better to Give and to Rec
    • 02/12/2015 - Navigating the Social Security
  • WM Newsletters
         
WHAT'S HAPPENING

Walk to Cure Arthritis
  Join us for the 2017 Walk to Cure Arthritis on Sunday, May 21, 2017. If you or your family/friends are interested in participating (or donating), CLICK HERE to join Opus Capital’s team.  There is no cost to participate!                      
  MEET OUR TEAM

Len A. Haussler, CFA, CPA
  Len A. Haussler, CFA, CPA
Founder
and Portfolio Manager

View Bio
Joseph P. Condren, CFA
  Joseph P. Condren, CFA
Principal, COO and CCO

View Bio

  Jakki L. Haussler, Esq., CPA
Founder and CEO

View Bio
B. Rapking - Operations Associate
  Brad J. Rapking
Equity Trader

View Bio
Michael R. Knapke
  Michael R. Knapke
Manager - Marketing and 
Client Relations

View Bio
Matt Mautino
  Matt Mautino
Operations Support

View Bio
John A. Ferguson, CFA
  John A. Ferguson, CFA
Principal
and Portfolio Manager

View Bio
Adam T. Eagleston, CFA
  Adam T. Eagleston, CFA
Principal
and Portfolio Manager

View Bio
David W. Wagner III
  David W. Wagner III
Research Analyst


View Bio
Nathan M. Bailey, CFA
  Nathan M. Bailey, CFA
Associate Wealth Advisor

View Bio
Debra Gordon
  Debra Gordon
Director - Marketing
and Client Relations

View Bio
Kevin P. Whelan, CFA
  Kevin P. Whelan, CFA
Principal
and Portfolio Manager

View Bio

  Nathanael A. Stewart, CFA
Associate Portfolio Manager
and Research Analyst

View Bio
Nathan A. Bishop, CFA
  Nathan A. Bishop, CFA
Principal
and Portfolio Manager

View Bio

  CONTACT INFO

221 E. 4th Street, Suite 2700
Cincinnati, OH 45202
Office: (513) 621-6787
         
Copyright © 2017. Opus Capital Management. All Rights Reserved