Daily Gains Letter

How to Profit from America’s Rise to Top Oil Producing Powerhouse

By for Daily Gains Letter | Feb 26, 2013

















260213_DL_zulfiqarThe U.S. is expected to overtake Saudi Arabia as the world’s top oil-producing nation by 2017; and by 2030, it’s also expected to become a net exporter of oil to the global economy—meaning it will be self-sufficient when it comes to energy consumption, according to a report published by the International Energy Agency (IEA). (Source: Rosenthal, E., “U.S. to Be World’s Top Oil Producer in 5 Years, Report Says,” The New York Times, November 12, 2012.)

In addition to the U.S. becoming a major oil producer, the IEA also indicated that the U.S. will overtake Russia as the world’s top natural gas producer by 2015. (Source: Ibid.)

Having said that, how can investors take advantage of this growth in energy production in the U.S. economy but not invest in oil and gas plays?

Hercules Offshore, Inc. (NASDAQ/HERO) provides shallow-water drilling and marine services to companies involved in oil and natural gas exploration and production worldwide. The company is based in Houston, Texas; Hercules’ fleet of jackup rigs is the largest in the U.S. Gulf of Mexico, and it’s the fourth-largest in the world. In addition, the firm is also the operator of the largest inland barge drilling fleet across the U.S Gulf Coast, and the largest lifeboat fleet worldwide. (Source: Hercules Offshore, Inc. web site, last accessed February 25, 2013.)

 

dl_0226_003 Chart courtesy of www.StockCharts.com

Currently trading near $6.70 with an average three-month volume of about 3.2 million per day, almost 74% of Hercules is held by institutions and 18.5% is held by insiders. The company’s book value stands at $5.57. (Source: Yahoo! Finance, last accessed February 25, 2013.)

On February 12, Hercules reported corporate earnings for the fourth quarter of 2012. The company showed a profit of $4.3 million, or $0.03 per share, with revenues of $203 million. In the same quarter last year, Hercules reported a loss of $21.5 million, or $0.16 per share, on revenues of $163 million.

As the company swung from loss to profit in the last quarter of 2012, the management is seeing positive indicators. While presenting corporate earnings, the CEO of the company, John T. Rynd, stated, “Market fundamentals in the U.S. Gulf of Mexico strengthened throughout 2012, to levels that, in many respects, are the best they have been in the long history of drilling in the region. This momentum continues through to today. As we begin 2013, the visibility in our core domestic business is unsurpassed, with customer discussions already focusing on 2014 demand…” (Source: “Hercules Offshore Announces Fourth Quarter and Full Year 2012 Results,” Hercules Offshore, Inc. web site, February 12, 2013.)

In early 2012, Hercules was trading near $5.50; and as the losses piled up, it traded lower—hitting below $3.00 in June. From there, Hercules has gained momentum to the upside and is trending higher.

Currently, Hercules appears to be finding support at its 50-day moving average (MA), and it’s trading well above its 200-day MA—a bullish sentiment in stock prices.

Looking from a fundamental and technical perspective, Hercules is a solid company with great potential. Recent price action and swinging from loss to profit suggest there is some room for this stock to go higher.

For those looking to profit from U.S. energy production growth, you can take a look at companies like Hercules. The main reason: they are already established here, so they know the market and how business is conducted in the marketplace.

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