10 Oversold Small Cap Stocks to Buy Right Now

4) Kosmos Energy Ltd. (NYSE:KOS)

Market Cap (As of October 23): $1.92 billion

Forward P/E (As of October 23): 3.98x

% Decline on a YTD Basis: ~41%

Number of Hedge Fund Holders: 25

Kosmos Energy Ltd. (NYSE:KOS) is engaged in the exploration, development, and production of oil and gas along the Atlantic Margins in the US.

Kosmos Energy Ltd. (NYSE:KOS) is focused on generating significant FCF, which it plans to use to reduce debt and invest in future growth in a disciplined capital framework. The company highlighted that its Winterfell project in the Gulf of Mexico is now online and continues to contribute to current production levels. Kosmos Energy Ltd. (NYSE:KOS) has been targeting a modest growth rate while remaining focused on the best projects in its capital framework.

Wall Street analysts opine that Kosmos Energy Ltd. (NYSE:KOS)’s deep portfolio of high-quality opportunities should drive future growth. In the Q2 2024 earnings call, the company highlighted that progress with the GTA project remains on track, with gas production expected to begin soon. Moreover, The Tortue project has been progressing with a clear plan for the first LNG production.

Kosmos Energy Ltd. (NYSE:KOS) highlighted that market conditions for farm downs in the Gulf of Mexico and gas projects, such as Yakaar-Teranga, remain favorable, with healthy interest from potential buyers.

Given the strong macro environment for gas and a positive outlook on its project portfolio, the company is well-placed to continue its trajectory toward increased production and cash flow generation. Benchmark restated a “Buy” rating on the company’s shares, giving a $8.00 price target on 16^th October.

Patient Capital Management, a value investing firm, released its third-quarter 2024 investor letter. Here is what the fund said:

“Both Kosmos Energy Ltd. (NYSE:KOS) and Seadrill Limited (SDRL) were top detractors in the quarter as energy prices moved lower. We believe both these names are particularly attractive for idiosyncratic reasons beyond a simple bet on energy prices.

Kosmos Energy (KOS) is an exploration and production services company with assets in Africa. The company is nearing the point where their free cash flow generation will inflect meaningfully higher as new production comes online and CAPEX spend returns to a more normalized maintenance level. We see this as a classic case of time arbitrage where the market is myopically focused on the current year’s high level of investment while ignoring the strong free cash flow generation on the other side. At the current commodity curve, the company will generate its market cap in FCF from 2025-2028. With the combination of gas heavy reserves and inflecting cash flow generation, we think Kosmos is significantly undervalued and a potential acquisition target.”