3 Strong Mid-Cap Energy Stocks to Buy — WPX, FANG, PE

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With oil and natural gas prices still in the proverbial toilet, most investors in the oil patch have hunkered down in large-cap energy stocks like Exxon Mobil Corporation (XOM) or Chevron Corporation (CVX). The pervasive idea is that these behemoth energy stocks have the assets — and balance sheets — to get them through the market’s current malaise.

3 Strong Mid-Cap Energy Stocks to Buy -- WPX, FANG, PEHowever, for those investors willing to do a bit of “wildcatting,” moving down the market-cap ladder could lead to some great long-term returns.

Mid-caps — or firms with market caps between $2 billion and $10 billion — could be the sweet spot for energy investors. That’s because mid-caps provide the right mixture of attributes for almost all market situations. These stocks typically enjoy strong cash flows, stable business models and less volatility than smaller equities. Plus, mid-caps can grow faster than their larger counterparts.

What’s even better is that many mid-cap energy stocks have been obliterated in the price downturn. For investors willing to do a little drilling, there are plenty of strong bargains among the wreckage.

Here are three mid-cap energy stocks to buy today.

Mid-Cap Energy Stocks to Buy: WPX Energy Inc (WPX)

WPX Energy 185Mid-cap E&P firm WPX Energy Inc (WPX) was spun off from pipeline giant Williams Companies Inc (WMB) back in 2011. At that time, the name of the game was natural gas. After all, WMB was one of the largest pipeline players focusing on the fuel. However, that position as an energy stock that focused on the natural gas wasn’t so great when prices hit historic lows pretty much right as it became a public company.

Since then, the firm has worked hard to become a much more balanced energy producer and has added plenty of oily acreage in Permian and prolific Bakken shale. And it continues to rebalance that portfolio even further today.

WPX recently announced that it is exiting those natural gas assets in Colorado via a $910 million sale. That sale provides a hefty slug of cash for the mid-cap producer — cash that it could use to help pay down its more than $3 billion in debt as well as fund its drilling programs in the Permian. That enhanced liquidity position and strong hedge book should help it make it through the rest of 2016 and the future unscathed.

Like many energy stocks, the idea is to kick the can far enough to where prices begin to rebound. The added cash helps WPX do just that. The future lies within its nearly 3,600 proposed drilling sites on its acreage.

All in all, WPX could be one of the best mid-cap energy stocks to buy today.

Mid-Cap Energy Stocks to Buy: Diamondback Energy Inc (FANG)

Mid-Cap Energy Stocks to Buy: Diamondback Energy Inc (FANG)Forget the so-called FANG stocks and focus on FANG instead. Mid-cap Diamondback Energy Inc (FANG) has been one of the better-performing energy stocks in the market. The reason has been twofold.

First, FANG focuses solely on the prolific Permian basin. The Permian is one of the lowest-cost fields in the country thanks to its long conventional production history, already-in-place infrastructure and easy to crack geology. More importantly, Diamondback’s acreage is incredibly oily — around 85% of its total reserves. As a result, FANG has some pretty darn good margins at its wells.

Secondly, FANG’s management has a lot of energy experience — meaning they’ve been through plenty of booms and busts. With that in mind, FANG is run very financially conservatively. The firm’s $760 million credit line hasn’t ever been tapped and it has a net debt-to-earnings ratio of just 0.4x. That’s incredibly low for the energy industry. And if oil stays low, management estimates that the amount will only rise to 2x. Again, still well below current metrics for the sector.

With those factors in mind, it’s easy to see how FANG is actually up year-to-date around 7%. Looking further down the road, Diamondback has the goods to regain its former pre-bust peaks and pay plenty of benefits to shareholders.

Mid-Cap Energy Stocks to Buy: Parsley Energy Inc (PE)

parsley energy pe 185Can you spot the trend? Parsley Energy Inc (PE) focuses its attention to the Midland Basin — which is a sub-part of the larger Permian. As we said before, the region is one of the lowest cost plays in the country. However, PE takes it one step further.

Parsley’s prime acreage positions sits on top of the “core of the core” in the region in the stacked pay fairway of the Spraberry, Wolfcamp, Cline and Atoka strata. Shale fields are like a layer cake. By focusing on the stacked region of the Permian, PE is able to hit multiple of these layers from one single well pad. This reduces costs and increases production and ultimately profits.

And PE has been increasing its profits.

Despite the current market muddle, PE managed to see its adjusted earnings increase by 25% over the previous quarter. A lot of energy firms can’t say that they actually made more money during the last quarter than before. Also adding to Parsley’s case is the firm’s low leverage and ample liquidity. PE has nearly $770 million of liquidity — both in cash and undrawn credit facility.

The combination of a strong production profile, actual profits and abundant available cash makes PE a top mid-cap energy stock to buy.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned stocks.

Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2016/03/energy-stocks-to-buy-wpx-pe-fang/.

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