2014 will bring plenty of exciting investment opportunities, but don't wait for 2014 to buy these stocks. Our analysts have 3 stocks investors should look at before the new year.
Matt DiLallo: Denbury Resources (DNR) is a great energy stock to buy before the new year. One of the top reasons to buy the enhanced oil recovery specialist now is that it announced it would start paying its investors a dividend next year. That dividend opens up the company to a whole new class of investors and should prove to be one of many catalysts for the company in the year ahead.
The other great reason to buy Denbury now is that its stock is as cheap as it was in the beginning of 2013 despite making tremendous progress this past year. Investors sold the stock off after it decided it didn't want to convert any of its oil- or carbon dioxide-related operations into an MLP. The company decided it was better off paying a lower dividend now than changing its entire business plan in order to pay out more to investors.
Investors buying Denbury's stock now can expect a dividend yielding about 1.5% next year. However, the company expects to more than double its dividend by 2015 and grow it at a very sustainable rate after that. With projected production growth between 4%-8% and a steady supply of oil projects coming online over the next decade, Denbury is a great oil stock to own for 2014 and beyond.
Maxx Chatsko: Before you write-off a biofuel investment, consider the case of the nation's largest biodiesel producer, Renewable Energy Group (REGI). It is profitable without government incentives (although they help), owns a national network of distribution terminals and logistics hubs, wields one of the most flexible production platforms in the industry, and is beginning to capitalize on urban demand for renewable heating oils. Renewable Energy Group owns an annual production capacity of 257 million gallons, representing 20% of national capacity, with construction in progress that would add another 150 mmgy to its base. That growth just got put on hold, however.
Shares have been slammed due to the Environmental Protection Agency's proposed future mandates for renewable fuel volumes, which disproportionally penalize biomass-based diesel and add uncertainty to the company's growth plans. I've explained several times why biodiesel doesn't face the same blending limitations as ethanol, but consider that the national blend rate of just 1.16% is far from the theoretical blending limit of 7%. Ethanol has already reached its blending limit of 10%. That alone should force the EPA to reconsider freezing biomass-based diesel volumes for 2014, or 2015 at the very least.
That would be good news for investors, especially considering shares are slumping to $10. Meanwhile, book value stood at $14.60 per share at the close of the third quarter, although it wouldn't be unreasonable to expect to pay a premium for a company growing as quickly as REG. I also think it's absurd to value a company with over $1 billion in sales at a market cap under $400 million. I would buy shares with or without a change to the proposed mandates -- which will be announced sometime next year -- and hold for the long term. Just expect volatility on your way to long term gains.
Tyler Crowe: For those of you who are afraid of the label "natural gas company" because of plummeting gas prices back in 2012, then you should get over that stigma and take another look at Devon Energy (DVN 1.55%). These past two months have gone to show how much value there is in a share of Devon Energy. Between its merger with Crosstex Energy (ENLC 1.33%) and the purchase of private company GeoSouthern, Devon is proving that it is worth much more than what many investors think it is.
Probably the best way to explain the value of Devon is to compare it to what many consider the best shale producer in the U.S., EOG Resources. Upon completion of the deal with GeoSouthern and the anticipated sale of some non-core assets, Devon will have total production and proved reserves and percent liquids production figures all within a couple percentage points of each other, as well as strong holdings in some of the top shale formations in the U.S. But here are two critical elements to consider in Devon's favor:
- Devon's pro forma proved reserves of 3.2 billion barrels of oil equivalent dwarfs EOG's proved reserves of 1.8 billion barrels oil equivalent.
- The current price for Devon's future production -- total market cap divided by proved reserves -- is $7.53 per barrel equivalent, whereas the price for EOG's future production stands at $23.87 per barrel equivalent today.
This isn't a knock on EOG Resources, they have proven to be a fantastic producer here in the U.S. Rather, these numbers go to show how much of a steal Devon Energy really is.
