Clayton Williams Energy, Inc. (CWEI)

[Wildbilly]

CWEI's pps could move up 7 fold

CWEI has the most potential upside based on its ratio of Cline Shale acreage to market capitalization. Potentially its Cline Shale holdings could cause the company's stock price to move up 7-fold; and that is without considering any other growth that it might manage during the next several years. It has 85,000 net acres in the Wolfcamp and Bonesprings areas of the Permian Basin. The Cline intersects the Wolfcamp shale. Plus it has over 1000 proven drilling locations in the Eagle Ford Shale. It has 100,000 to 125,000 net acres in the Eagle Ford Shale, which has already proven to be highly profitable. CWEI already has a good gross profit margin of 65.22%. As it develops its Cline Shale property, one would expect that to increase. Well costs should go down. One would also expect the Operating and Net profit margins to improve. Even so, its adjusted net income for Q2 2013 was $11.7 million. This was a very positive sign. It averaged 13,875 Boe/d in Q2 2013, which is very positive. This is a lot for a $643.5 million market cap company. For instance, Kodiak Oil & Gas Corp. (KOG) had daily production of about 34,000 Boe/d in Q2 2013. Yet it has roughly five times the market cap at $2.98B. In other words, it produced about half as much per dollar of market cap. This statistic makes one like CWEI, especially when you consider how prolific the Cline Shale is purported to be (better than the Bakken). The following link is to CWEI's Q2 2013 report. It is a buy, although it is a less strong company than FANG due to CWEI's greater debt load.

Both of the other two companies can also be considered buys. These are small E & P companies with a lot of growth potential. RRC is probably medium sized, but it has other assets which add further to its growth potential. These include already proved reserves of 6.5 Tcfe as of December 31, 2012. Getting oilier as it grows production in the Cline Shale can only help it be more profitable.

The two year charts of these stocks provide some technical direction to investors.

The two year chart of CWEI is below:

(click to enlarge)

The slow stochastic sub chart shows that CWEI is near overbought levels. The main chart shows that it made a bottom in late 2012 and 1H 2013. It consolidated for long enough to give it a good impetus to go up. The Cline Shale development should provide that impetus over the next several years. CWEI is a buy; but most investors may wish to wait for an overall market pullback to begin buying. Alternatively one might decide to average in over time. It does have a lot of debt; and its EPS and net profit margin numbers are still weak. It could be hurt substantially in a bad economic environment. With the Fed recently lowering its economic growth estimates for the US for 2013 and 2014, an investor probably does not want to buy in on CWEI whole hog at this moment in time. Averaging in over the next year may be a good strategy. Still CWEI does have huge growth potential for anyone's portfolio.

The two year chart of LPI is below:

(click to enlarge)

The slow stochastic sub chart shows that LPI is at overbought levels. The main chart shows that LPI is in a strong uptrend. However, the uptrend appears to be overextended. It would probably be smart for investors to wait for a pullback before investing. Still the strength of the uptrend is encouraging.

The two year chart of RRC is below:

(click to enlarge)

The slow stochastic sub chart shows that RRC is near overbought levels. The main chart shows that RRC is in a weak uptrend. It has a lot of natural gas production. If natural gas prices fall demonstrably it will be hurt. It might be wise to wait for a pullback in RRC before buying, especially with the overall market overbought. As a bigger company, RRC's Cline Shale holdings are a smaller part of its portfolio.

The one year chart of FANG is below:

(click to enlarge)

The slow stochastic sub chart shows that FANG is near overbought levels. The main chart shows that FANG is in a strong uptrend. The fundamentals uncovered above tend to support the continuation of this uptrend. Plus stocks with strong charts are often what they appear to be -- strong. However, with the current market overbought, it might be a good idea to average in.

NOTE: Much of the above fundamental financial data is from Yahoo Finance and TD Ameritrade.

Good Luck Trading.

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