Looking for the next oil stock to run? 10 companies to add to your watch list (NYSE:BORR)
The latest rise in oil prices has apparently started to draw the crowd, as evidenced by the violent movements of a number of oil-related stocks like Indonesia Energy (INDO), Mexco Energy (MXC), Imperial Petroleum (IMPP, IMPPP) and Nine Energy. Service (NEW), to name but a few.
Even shares of struggling seismic data provider ION Geophysical (IO) managed to stage a violent rally despite the company defaulting on its debt and reportedly seeking to sell off at an auction overseen by a court under Chapter 11.
With fundamentals seemingly on the back burner at the moment, I took the time to take a closer look at my coverage universe and came up with a number of stocks that may soon be discovered by the dynamic crowd:
1. Efficient Shipping
Performance Shipping (PSHG) is a Greece-based small tanker operator focused solely on Aframax crude carriers. After the recent exchange offer, common shares outstanding have been reduced to a meager 2.3 million. The company is trading at an eye-catching 85% discount to net asset value (“NAV”). A tiny float and a massive discount to NAV should be strong incentives for momentum traders to chase stocks.
2. Ocean Pal
OceanPal (OP) is a dry bulk shipper only with no direct exposure to oil markets. That said, OceanPal is more or less a mirror image of Imperial Petroleum, as both companies spun off from their respective parent companies in recent months and almost immediately began raising capital at steep discounts to NAV, causing the crash in stock prices ahead of the recent rally. Shares began to scoop up on traders alongside Imperial Petroleum on Friday.
3. Pyxis Tankers
Pyxis Tankers (PXS, PXSAP) is Imperial Petroleum’s closest peer, with both companies operating a small fleet of tankers (Imperial Petroleum also owns crude carrier Aframax). But while Imperial Petroleum is now trading at a premium of over 100% to NAV per share, Pyxis Tankers is still changing hands for a nearly 40% discount to NAV. Unlike other Greek shippers, the company has not diluted shareholders by selling shares at deep discounts to NAV in recent years.
4. Best Ships
Top Ships (TOPS) operates a modern fleet of tankers and tankers on long term charters. The company is trading at an estimated 80% discount to net asset value, likely due to management’s long history of fleet growth at the expense of common shareholders by raising capital well below value. liquidation.
5. SEACOR Marine Holdings
SEACOR Marine (SMHI) provides global shipping and support services to offshore energy installations around the world.
In recent years, the offshore services industry has suffered from massive overcapacity which has led most of the company’s peers to file for bankruptcy.
As the offshore drilling industry shows signs of recovery, SEACOR Marine‘s business should see a decent improvement over the next two quarters. While net debt of $300 million remains strong, the company generated positive free cash flow last year and is expected to continue to do so in the future.
6. Sea Beaver
Castor Maritime (CTRM) is primarily a dry bulk shipper, but has recently expanded into the tanker segment. The company currently has a fleet of 20 dry bulk carriers and 9 tankers. Quite similar to Top Ships, the company has grown its fleet at the cost of massive shareholder dilution, which is likely why the shares are trading at around a 70% discount to NAV. . The company has a healthy balance sheet with decent cash and rather low debt levels.
7. Borr Drilling
Borr Drilling (BORR) is a young offshore driller specializing in high specification jack-up rigs. Similar to industry leader Transocean, the company needs to resolve some debt and liquidity issues, but with improving demand for drilling services, the company should succeed in its efforts to refinance remaining debt maturities to short term.
8. Helix Energy Solutions
Helix Energy Solutions (HLX) provides specialist services to the offshore energy industry. With activity in the offshore sector picking up, the company is expected to see an increase in demand for its offerings going forward. During the recession, Helix Energy Solutions continued to generate strong cash flow. The company also has decent cash and no net debt.
Tidewater (TDW) is a leading provider of offshore marine transportation and support services to the offshore energy industry worldwide.
After restructuring its Chapter 11 obligations a few years ago, the company emerged with a healthy balance sheet and strong liquidity.
Similar to SEACOR Marine, the company is expected to experience a significant increase in business activity at the start of fiscal 2023 with an increasing number of offshore projects set to start.
Even at current, moderate demand levels, the company is generating cash.
Transocean (RIG) is a leading offshore driller. High leverage and massive investment commitments crippled the company’s share price during the recession, but, with charter rates in the U.S. Gulf of Mexico at multi-year highs , the company should be able to resolve its debt and liquidity issues in due course. .
Momentum traders have chosen oil-related companies as their latest playground with a large number of stocks currently seeing wild moves in massive volume.
As a rule of thumb: the lower the stock price and the number of stocks, the higher the likelihood of momentum traders chasing the stock.
Basically, all of the stocks discussed above have been subject to violent momentum rallies in the past or more recently.
Even a large company with a multi-billion dollar market capitalization like Transocean has seen a number of very strong moves in recent quarters.
At this point, I would prefer tanker games like Performance Shipping, Pyxis Tankers, or even Top Ships to offshore service providers like SEACOR Marine, Tidewater, or Helix Energy Solutions simply because of their obvious similarities to the newer Imperial Petroleum.
I would also expect offshore drillers like Borr Drilling and Transocean to remain hot given the ongoing geopolitical winds.
Please note that momentum trading is subject to high risk as many of these stocks trade independently of fundamentals. At some point, the mob will depart for supposedly greener pastures, often leaving large numbers of trapped traders behind. So don’t bet the farm on dynamic stocks and manage your risk properly.