The Motley Fool

This oil and gas stock looks set to outperform BP plc

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

One good thing for oil companies about the lower price of oil over the last couple of years is that many assets are selling cheaper than they were when oil was high.

If a firm has the cash to spend, investing now could pay off down the line, and that’s the tactic that US-focused Diversified Gas & Oil (LSE: DGOC) is employing.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Oil in the blood

The firm came to the London AIM market in February raising $50m for its war chest, which makes the company all the more interesting to me because the shares of newly-listed firms often do well. At the point of flotation they can be well financed and driven by entrepreneurial management teams keen to make their mark.

Diversified Gas & Oil’s chief executive is certainly equipped with a full-blooded oil company boss name in Rusty Hutson, Jr (I’m already thinking of Red Adair and Dallas). He explained in this month’s full-year results report that during 2016, strategic acquisitions increased cash flow and profitability. Now, the firm’s flotation on the London market has “leveraged these foundations to execute our more ambitious strategic objectives,” he reckons.

Focused in the good old US of A

Indeed, the firm announced today the acquisition of certain producing gas and oil wells, close to the company’s existing operations in the Appalachian Basin in the eastern United States, from Titan Energy. The deal will almost double the size of operations and Mr Hutson reckons it will be transformational for the company, making it a leading conventional player in the Appalachian Basin, with low-cost production and predictable cash flow. He thinks the synergies and streamlining of the firm’s expanded operations will enable lower operating costs, making the business resilient in an ongoing low-commodity-price environment.

Meanwhile, the directors are focusing on a “buoyant” acquisition pipeline, which they hope to pursue after the Titan Energy acquisition. To finance all this activity, the firm will use existing funds along with a further placing this month that raised $35m at a share price of 70p, and a $110m loan facility.

A massive uplift in earnings

City analysts see the firm as on course to lift earnings around 260% next year and the forward price-to-earnings (P/E) ratio sits just below 15. I reckon the company has every chance of outperforming its larger peers such as BP (LSE: BP) over the next few years.

BP looks set to grow earnings by around 28% during 2018 and the forward P/E rating runs just under 14. The big difference between BP and Diversified Gas & Oil is that BP pays a dividend with the forward yield running at 6.8%, although future dividend payments are on the agenda at Diversified Gas & Oil, too.

Reshaping for growth

Since the Gulf-of-Mexico oil blow-out disaster and its aftermath, BP has been selling assets and reconfiguring operations to support a more-nimble approach to growth. But I think the firm’s sheer size is against it as a growth proposition. With a market capitalisation of £88bn or so, it dwarfs little £81m Diversified Gas & Oil. To me, investor capital gains seem more likely from Diversified. However, the two firms could complement each other in a balanced portfolio if you are looking for exposure to commodities.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has recommended BP. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.