Crude oil recently hit a four-month high, with the International Energy Agency expecting a supply deficit through 2024. That view is based on the premise that OPEC maintains production cuts.
However, this is not the only catalyst for crude oil. There will likely be multiple rate cuts in the next 12 to 18 months. Expansionary monetary policy is likely to support GDP growth, and as the global economy gains momentum, crude is expected to trend higher.
I am, therefore, bullish on oil stocks, and the focus of this column is on oil & gas penny stocks. I believe the stocks discussed could surge by 100% by the end of 2025. That is after considering the factors of potentially higher realized oil prices and geopolitical tensions. Additionally, the penny oil and gas stocks discussed represent undervalued companies with good fundamentals and a swelling cash flow outlook.
Let’s discuss the reasons to be bullish on these oil & gas penny stocks.
Ring Energy (REI)
Person holding the glowing world in their hands with icons with different types of energy. AI Recommended Energy Stocks in July
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Ring Energy (NYSE:REI) is a massively undervalued oil and gas penny stock poised to surge higher. As a matter of fact, REI stock has returned 34% in the last month. However, over a 12-month period, the stock has remained sideways.
It’s worth noting that Ring Energy has a current market valuation of $370 million. In comparison, the company’s PV10 (present value of estimated future oil and gas revenues, net of forecasted direct expenses) stands at $1.65 billion. Additionally, proved reserves life of 19.6 years implies clear revenue visibility.
For 2023, Ring Energy reported revenue growth of 4% to $361.1 million. For the same period, adjusted EBITDA growth was 21% on a year-on-year basis to $236 million. I believe as oil trends higher, the company will be positioned for healthy EBITDA and cash flow growth.
Ring Energy has also pursued multiple acquisitions in the last few years. With leverage at 1.62x, I expect opportunistic acquisitions to continue driving production growth.
Nordic American Tankers (NAT)
Large tanker ship carrying natural gas at dusk in harbor
Source: shutterstock.com/Wojciech Wrzesien
Nordic American Tankers (NYSE:NAT) is among the penny stocks to buy with a robust dividend yield. NAT stock looks massively undervalued at a forward price-earnings ratio of 7.3. Further, the stock offers a dividend yield of 11.8%, and I believe that dividends are sustainable.
It’s worth noting that NAT stock has remained sideways in the last 12 months. Considering the valuation, I expect total returns of 100% before the end of 2025. As an overview, Nordic American is a provider of crude oil tankers. Currently, the company has a fleet size of 20 tankers.
An important point to note is that for 2023, Nordic reported an average time charter equivalent rate of $39,170 per day per ship. For the same period, the company’s operating cost per day per ship was $9,000. Therefore, with robust TCE rates, the company has delivered strong cash flows.
I must add here that NAT’s debt currently stands at $11.6 million per vessel. With low leverage, there is a case for fleet expansion if healthy TCE rates sustain.
Athabasca Oil (ATHOF)
Oil. 3D Illustration. Oil stocks are up.
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Athabasca Oil (OTCMKTS:ATHOF) stock has witnessed a rally of 95% in the last 12 months. I, however, believe the stock remains attractively valued and is likely to double from current levels of $3.9.
The first positive is that Athabasca Oil has a strong reserve base with 1.2 billion barrels of oil equivalent of proved reserves. Further, contingent resources stand at one billion BOE. The company’s 2P reserves have a net present value (NPV10) of $5.3 billion, and Athabasca has a current market valuation of $2.2 billion. That puts into perspective the extent of undervaluation.
Another point to note is that the company reported an adjusted fund flow of $295 million for 2023. For the current year, Athabasca has guided for an AFF of $460 million along with free cash flow of $325 million. Further, between 2024 and 2026, the company expects more than $1 billion in free cash flows. With quality assets and high financial flexibility, Athabasca seems positioned for production growth and value creation.
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On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.