While the dividend payout ratio stands at 30%, buying Silver Wheaton Corp. (USA) (NYSE:SLW) for yield alone isn’t advised. Fellow Fool Rupert Hargreaves has doubts that its dividend can be covered if silver prices remain depressed.
Two oils that are pretty slick
Oil States International, Inc. (NYSE:OIS), a global specialty service and products supplier (also called accommodations) to oil and gas drillers and producers, earns a five star CAPS rating and has a trailing P/E of 12.13 and a PEG of .77.
Oil States has performed well this last year with gains of 33.55%, and is only 1% off its 52 week high of $94.32. The company has enjoyed stunning three year EPS growth of 86.43%, although three year revenue growth has been more modest at 28.60%. Gross margin was the lowest of these screened names at 25.14%.
It has garnered 12 Wall Street Outperforms and its median price target is $99.50, but caution is advised after the company received four downgrades in the last two months, losing two Outperforms and two Buys. Although the short interest is 4%, it is decreasing.
Mostly that was on valuation due to a 40% run up in the stock after hedge fund activist David Einhorn bought 2.7 million shares to make it his largest new holding in Q1. Einhorn gave a $120 price target based on his sum of the parts analysis at 8.6 x 2013 EBITDA, and then conjectured an $155 pps if the company would turn its Accommodations unit into a REIT. Einhorn thinks that the Accommodations division is undervalued with its high growth and return on capital. JANA Partners Barry Rosenstein owns even more than Einhorn, with a 9.1% stake in Oil States.
Rosetta Resources Inc. (NASDAQ:ROSE), an independent oil and gas explorer and producer, is more gas oriented than oily. Hey, gassy and fat–what could be better? Rosetta Resources Inc. (NASDAQ:ROSE) has 18 Wall Street Outperforms with a PEG of .30.
With some of the lowest costs to drill in the industry and prime property in the Texas Eagle Ford shale region, Rosetta Resources Inc. (NASDAQ:ROSE) will be in the catbird seat when natural gas prices rise with increased demand.
Its gross margin stands at 81.2% with an impressive 96% EPS growth rate over the last three years. It reported on May 6 another EPS beat, but its revenues missed. For the past three years revenue growth has lagged EPS growth at only 27%. Its trailing P/E is 13.12 with a forward P/E of 9.48.
An important advantage going forward for the company is this focus on the Eagle Ford, which allows them just about the lowest reserve replacement costs in the industry at $6.99 per barrel of oil equivalent. Fool Tyler Crowe explains reserve replacement costs with industry comparisons here.
It also has the lowest corporate governance risk rating of 1 (the best!). CEO James Craddock’s compensation of $690,000 is certainly among the lowest in the natural gas patch compared to similar market cap SandRidge Energy Inc. (NYSE:SD) and much larger Chesapeake Energy Corporation (NYSE:CHK).
The Foolish Takeaway
These three mid-caps are still dependent on a rise in silver and energy prices. Most promising is Rosetta Resources Inc. (NASDAQ:ROSE), with increasing demand for natural gas and a gradual rise in prices. Oil States is worth a look with two activist investors pushing to unlock value. Finally, Silver Wheaton is a good play on a silver resurgence, but likely the most speculative of these “never too thin will make you rich” stocks.
The article How to Make Money with Fat Stocks originally appeared on Fool.com.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. AnnaLisa 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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