Are These Discounted Companies Worth a Look?

The earnings season is always a time of frenzied activity. In the last couple of weeks, most oil and gas companies came out with their third-quarter results, and invariably, the markets reacted to the various developments that weren't seemingly factored in previously. While some stocks soared following earnings announcements, many others took a nosedive.

Yet Fools should note that a plunge isn't necessarily a bad thing. Instead, it might prove to be that rare opportunity to buy some of these stocks on the cheap. Let's examine a few of the laggards of this week and see whether there's a hidden opportunity waiting to be grabbed.

1. Devon Energy (NYSE: DVN  )
Since its third-quarter earnings release on Wednesday, nearly 10% of Devon's market cap has been shaved off. The Oklahoma-based exploration and production major reported a net loss of $719 million, thanks to a $1.1 billion asset-impairment charge. Being a natural gas producer primarily, Devon couldn't do much about the lousy market conditions for this commodity. The average realized price for natural gas stood at $3.02 per thousand cubic feet (Mcf), compared with $4.16 per Mcf in the year-ago quarter. That translates into a huge 27% fall. However, investors must realize that the impairment charge was a non-cash expense.

However, even though natural gas prices took a hit, Devon managed to grow its overall sales. The company's foray into liquids has been astounding. Through its Permian Basin and Canadian oilsands properties, Devon has increased oil production by a solid 22% this year. Average daily production for the first three quarters grew by a solid 25,700 barrels compared with last year's corresponding period. This is exactly where I'm optimistic about Devon's growth opportunities. Moreover, natural gas prices might have already seen the worst and could be on their way up. Additionally, the winter could spur natural gas demand unlike last year. Devon could be a huge opportunity.

2. Ultra Petroleum (NYSE: UPL  )
Shares of Ultra Petroleum have fallen more than 8%  since the company announced its earnings. This natural gas producer has been going from bad to worse. Revenue  fell 33% from last year's third quarter. On top of that, an asset writedown of $607 million doesn't help. This year alone, ceiling tests and asset impairment expenses stand at $2.4 billion. Even adjusted net income -- which indicates core operational results -- fell to $0.64 per share from last year's corresponding $0.72 per share. Management is now focusing on cost-cutting measures with a reduced capital expenditure program. The only hope for Ultra Petroleum, right now, is a rebound in natural gas prices.

3. Continental Resources (NYSE: CLR  )
The Bakken shale play's largest oil producer is going great guns. Average third-quarter production hit a record high of 102,964 barrels of oil equivalent per day -- a whopping 55% higher than the year ago quarter. Not surprisingly, revenue went up nearly 50% to $633 million.

However, the market thinks these figures are irrelevant. The stock's down nearly 8% since the earnings release last Wednesday. The reason? Continental recorded a loss pertaining to derivative instruments to the tune of $158 million. On an after-tax basis, unrealized loss from the hedging of oil prices was $97 million. In other words, cash hasn't actually left the building.

So should investors be worried? I don't think so. Notional losses are nothing new for Continental. Eighteen months ago, I wrote that these kinds of losses are insignificant because of the company's solid underlying fundamentals. Since then, Continental is up nearly 16%,  compared with the S&P 500's 2% gain. In the long run, these events are actually non-starters. They just create ripples that quickly die away.

What investors should rather be interested is the company's area of operations. The Bakken continues to be the most promising shale play in North America, and Continental holds the largest acreage here. Fellow Bakken operator Whiting Petroleum (NYSE: WLL  ) is even rumored to be up for grabs. In this context, I still think Continental is trading cheaply, and the latest drop in its share price is an opportunity for long-term investors.

4. Enerplus (NYSE: ERF  )
After yesterday's earnings release, the stock has fallen more than 14%. The Canadian natural gas producer couldn't live up to expectations despite a rise in production from its Bakken properties. Natural gas production fell because of reduced capital spending. To add to the injury, management announced a gloomy outlook for next year as well. While this shouldn't be too surprising, the company's Bakken production could be a ray of hope for the future. However, it's too early to come to any conclusion. If natural gas prices move up, things could become better.

However, if you're looking for a great Bakken investment, Kodiak Oil & Gas is a dynamic growth story. But with great opportunities come great risks. Before you hitch your horse to this carriage let us help you with your due diligence. To see whether Kodiak is currently a buy or sell, check out our new premium report, which comes with a year of timely updates and analysis.


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