Friday November 18, 2011
by John Buckingham, editor The Prudent Speculator
We discriminate among potential investments primarily by their relative valuation metrics and our assessments of stock-specific risk.
We buy only those stocks we find undervalued along several lines relative to their own trading history, those of their peers or that of the market in general.
The prices at which we’ll buy and sell stocks incorporate a range of fundamental risks (e.g. credit, customer and competitive dynamic) that we believe the companies may face over our normal 3-to-5-year investing time horizon.
Among our latest featured stock ideas are two companies involved in oil and gas.
Canadian-based Nexen (NXY) engages in global exploration and production of conventional oil and unconventional natural gas, as well as in mining oil sands in the Alberta province of Canada.
Increases in long-term global oil demand and tight supply constraints should bode well for NXY.
We also like that Nexen has had recent exploration success and is maintaining its status as a low-cost producer. Furthermore, management continues to aggressively pay down debt to strengthen the balance sheet.
Shares are currently trading at less than 10 times forward earnings estimates and right near tangible book value.
Total (TOT) is the fifth-largest, publicly-traded integrated oil and gas company in the world. Its global businesses include: upstream exploration and production; downstream refining and marketing; and chemicals.
We like Total for its low cost structure, high profitability and strong balance sheet.
Despite continued sluggishness in Europe, the French oil giant remains committed to projects already underway as well as to potential upstream acquisitions.
Though shares have rebounded nicely since the lows hit in September, the valuation is still compelling as the stock currently trades for 7 times estimated earnings. TOT also sports a 5% dividend yield.
Learn more about this financial newsletter at John Buckingham's The Prudent Speculator.