2 Energy Stocks to Buy Despite Headwinds: Halliburton Company (HAL) and More

Halliburton Company (NYSE:HAL) and Suncor Energy Inc. (USA) (NYSE:SU) both face a similar problem: While they are leaders in their field, they face unique headwinds that their competitors do not. However, recent momentum and decisions made by both position the two for incredible upside. Below, I review why I am optimistic on their stocks.

Halliburton Company (NYSE:HAL)

Halliburton is a market leader in the energy industry and ranks just behind Schlumberger Limited. (NYSE:SLB) in the oilfied service category. Looking at Halliburton’s revenue, one can tell that the company has been doing well for the last three years. In 2010, the company had revenue amounting to $18 billion, while, in 2011 it was $24.8 billion. In 2012, it was $28.5 billion. The results indicate a continuous and steady path of growth–a Warren Buffett kind of investment, if you will.

Taking a look at profitability, one notices that the company’s 14.6% operating margin, which is healthy considering that the leader in the industry, Schlumberger has operating margins only 240 bps higher despite being 2.7x bigger. The working capital ratio of 2.8x is quite high compared to Schlumberger, which has an operating capital ratio of 1.95. A working capital of more than 1 indicates that the company is able to clear all their debts if such a move was mandatory. Halliburton has also been reducing its debt, as evidenced by the ever-falling debt to equity ratio. The ratio has reduced from 26.9% to 26.7% and finally 23.4% in 2010, 2011 and 2012, respectively.

At around 15.4x past earnings, Halliburton may be at a 52-week high, but I don’t think its momentum will slow down any time soon. Nor, for that matter, does the Street. Analysts rate the stock a 1.9 out of 5 where “1” is a “buy.” They are forecasting a terrific 14.5% annual EPS growth rate over the next five years.

Suncor Energy Inc. (USA) (NYSE:SU)

Suncor recently announced their “2013 capital spending plan” and their production outlook. The company set aside $7.3 billion for capital spending. The money is to be used in the growth and sustainability of projects. Daily oil production is expected to increase by 8% to the range of between 570,000 and 620,000 barrels a day. This increased production will also mean that oil sands production will increase by about 12% compared to the previous year.

Out of the $7.3 billion, $3.3 billion is expected to be used for growth projects. This is particularly important, because the company is suffering from investors who are afraid of the company’s flat growth curve–analysts only forecast 3.6% annual EPS growth per year over the next five years. Fortunately, more than half of the project development fund is aimed at advancing high-growth exploration as well as production in Hebron and other areas. With Eastern Canada suffering from low prices, this is just the kind of exploration that Suncor needs to widen margins and keep investors glued on the upside.