SandRidge Energy Inc. (SD), Chesapeake Energy Corporation (CHK): Investing in Small Energy Companies Is Dangerous

Exxon Mobil Corporation (NYSE:XOM) has a consistent history of profitability, and its leaders have created a steady flow of dividends that investors can depend on. While it can be attractive to chase large returns and bet on corporate turnarounds, ExxonMobil provides a stable place to park your funds. Unlike SandRidge, ExxonMobil offers a fat ROI of 32.9% and almost no debt with a total debt to equity ratio of 0.08. At a current P/E ratio of 9.8, this firm is a far superior investment to SandRidge.

Conclusion

Small companies offer more growth and more risk. SandRidge is still dealing with its questionable CEO. Until its corporate governance issues are settled, it is best to leave the company alone. Its Mississippian trusts are an option for income investors, but it is best to purchase them with a large margin of safety due to high declines in production rates.

Chesapeake went through a similar nightmare as SandRidge, and its profits are still unsteady. For long-term investors looking for steady earnings and little stress, it is best to look at ExxonMobil.

Joshua Bondy has no position in any stocks mentioned. The Motley Fool owns shares of SANDRIDGE MISSISSIPPIAN TR II COM and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy.

The article Investing in Small Energy Companies Is Dangerous originally appeared on Fool.com and is written by Joshua Bondy.

Joshua is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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