The Top Five Eagle Ford Shale Oil Stocks

The Top Five Eagle Ford Shale Oil Stocks $NS $VLO $MUR $BWP $FST

The shale oil boom is turning out to be even bigger than anyone predicted.

Recently Money Morning told you about the Bakken oil shale boom. The Eagle Ford shale oil formation in south Texas is nearly as large, and production there is ramping up rapidly.

Eagle Ford is among the largest U.S. shale oil deposits, with recoverable reserves estimated as high as 7 billion to 10 billion barrels.

NuStar Energy (NYSE: NS): Spun off from Valero, NuStar is an oil transportation company that currently operates two pipelines out of Eagle Ford. Analysts have concerns about declining earnings per share and a disappointing return on equity, although that is partly due to heavy investments made in drilling infrastructure. On the other hand, cash flow is strong and revenue growth in the most recent quarter was up 40.6% year over year. And recall what CEO Anastasio said about Eagle Ford doubling its earnings. NuStar’s P/E of 19.5 is lower than the industry average of 21.7. Though shares are down 6.1% so far this year to $51.89, the one-year average price target is $58.50. But perhaps the best reason to look at NuStar – a master limited partnership (MLP) — is the dividend. It pays $4.38 for an eye-popping yield of 8.20%.

Valero Energy Corp. (NYSE: VLO): Valero’s refining operations are drawing great benefit from the rapidly rising Eagle Ford output. In fact, its Houston refinery, which once imported all of its crude from West Africa, now uses only U.S. crude. Since Valero pays less for the domestic crude, the savings should drop to the bottom line. Many analysts consider VLO undervalued with a P/E of just 7.77. They also see EPS growth of 15.1% in 2012 and 14.9% in 2013. Valero has pulled back 13.6% in the past three months to $21.59, well below the $28.86 book value. The one-year target price is $30.15. VLO pays a dividend of $0.60 for a yield of 2.80%.

Murphy Oil Corp (NYSE: MUR): Murphy Oil already has 61 producing wells in the Eagle Ford. The company expects daily production to rise more than 50% this year over 2011 levels of 10,000 barrels per day. It expects to hit 48,000 barrels per day by 2015. MUR has a low P/E of 10.06 and at $46.29 is also trading below its book value of $46.97. The stock is down 27.7% since late February, partly due to recent earnings disappointments. But estimates for the current quarter have been rising. 

Boardwalk Pipeline Partners LP (NYSE: BWP): Boardwalk, a pipeline and storage company, is a play on Eagle Ford’s shale gas deposits. The company announced two deals in February with Statoil and Talisman Energy in connection with its latest Eagle Ford expansion project. BWP also had a good first quarter, with profits up 12% despite historically low natural gas prices. Boardwalk also raised its dividend for the sixth year in a row, and now pays $2.13 a share for an impressive yield of 7.80%. With a beta of just 0.51, BWP is significantly less volatile than most other energy stocks. It was trading Friday at $27.60. The one-year price target is $29.50.

Forest Oil Corp (NYSE: FST): Forest is a smallish oil and gas producer in Eagle Ford. Its $1.8 billion in debt is a bit troubling, but those investments are on the verge of paying off as production accelerates. With a market cap of just $1 billion, however, Forest Oil is a prime takeover target. Such a deal would deliver a big payoff to investors. Consider that just last week, Marathon Oil bought privately held Paloma Partners for $767 million to get 17,000 acres in Eagle Ford. Forest owns 118,000 acres in Eagle Ford in addition to large holdings in other shale oil formations in Texas and Louisiana. FST has a reasonable P/E of 9.48, but pays no dividend. The Friday price was $8.69, and the one year target is $15.58.

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