When you see the name PetroKazakhstan (NYSE: PKZ), most people are going to think "Russian oil company" and be reminded of former oil giant YUKOS (Pink Sheets: YUKOY) -- which the Russian tax man demolished.
Let's get a few things straight. Kazakhstan is independent of Russia. And put away the holy water and garlands of garlic -- there is no tax vampire in this story.
PetroKazakhstan, a Canadian company, is an integrated oil company that is a low-cost producer of sweet light crude in Kazakhstan. In the capital-intensive world of oil, it is a rarity -- it has more cash than debt. In fact, look at the snapshot to see some fantastic operating numbers. The price-to-earnings is an extremely low 5.6 times. The profit margin (not the gross or operating margin) is a lofty 30.6%, and the return-on-equity is a gilded 97.2%.
If those eye-catching numbers are not impressive enough, analysts expect the company to earn $6.68 a share next year -- a forward price of 5.4 times earnings. That's a lot of black gold making it to the bottom line but not given much respect on Wall Street.
Speaking of Wall Street, look at this five-day chart of the company's price movement. Yesterday, it was one of the largest percentage losers on the NYSE. A temporaryproduction curtailment at a joint venture sent the shares falling. But with up to a quarter of the company's net production at risk, conservative investors probably sold. Today, the stock is one of the largest percentage gainers. Make sense of that!
What does make sense is that if you screen carefully for great value in overlooked stocks, like Motley Fool writer Seth Jayson did in April using legendary stock picker Benjamin Grahman's selection criteria, PetroKazakhstan pops up. It even pays a 1.8% dividend, is repurchasing its shares (at these prices, that makes sense!), and provides a crystal clear presentation of its results every quarter.
There are political risks -- and the curtailment is a great example of that. There is also the prospect of falling oil prices, and, because this is an integrated oil company, there are risks other than the price of crude oil. But when you buy a cash-rich company that is building wealth -- and is a low-cost producer -- for such a low multiple to earnings, your downside risks are limited.
Wall Street is sending this stock up and down like a yo-yo. But with BP (NYSE: BP), Royal Dutch (NYSE: RD), and Total (NYSE: TOT) selling for 13 to 14 times earnings, PetroKazakhstan is a value play with a solid financial foundation.
The Motley Fool is investors talking to investors. Join in the discussion of PetroKazakhstan and BP on the Motley Fool discussion boards.
Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.
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