Long Term Top 10. Last week I was asked for a list of names I’d thing about investing in for the long term  via their common shares. The following is in no particular order … broken down by sector, time limit three to five years. Note their are more than 10 names here as it gets hard to pin down what you like when everything looks so cheap. These are names that will very, very, very likely survive the current malaise in the industry and will likely see higher share prices than the 2008 cycle peak by 2011.

Exploration & Production: I’d pick EOG and any three of the other E&P names. .

• CHK – U.S. Natural Gas Pure Play
  • Aggressive growth management style,
  • 92% natural gas, all U.S. onshore
  • 1st or 2nd largest U.S. natural gas producer,
  • Production largely from shales, so it can be quickly adjusted down (and somewhat less quickly up) with price
  • Arguably the largest drilling inventory in the U.S., of any independent or major.
  • The stock stands to benefit more than the other big cap names from new revisions to SEC reserve rules set to be in place for 2009. 

• SWN -  Smaller U.S. Natural Gas Play
  • Strong, seasoned management team, conservative with new plays then does a good job of systematizing.
  • 96% gas, all U.S. onshore
  • Leader in the Fayetteville shale
  • Good balance sheet (21% debt to cap), large drilling inventory, new ventures include low cost looks at the Marcellus and Haynesville shales via small acreage positions.
  • Valuation: typically trades at premium due to continued improvement of its core asset and an under-promise, over deliver mentality. Current P/CF of 5.7x 2010 cash flow is on the cheap end of a decade long range.

• EOG – Large Cap Diversified U.S. natural gas and emerging oil play
  • Conservative management style
  • 17% debt o cap, plan to go to $0 debt over the long terms (hold flat this year)
  • Targets high single to low double digit long term production growth
  • Large drilling inventory
  • Gassy at 79% of production but oil weighting in the portfolio is increasing with their best in class Bakken wells (not the single largest) but the largest grouping of big wells in the eastern side of the play
  • Valuation: Another premium trader, currently at a low P/CF of 4.7x on 2010 CFPS (vs a normal range of 5 to 11x forward numbers), lots of growth opportunities both oily and gassy in the U.S. and Canada when prices recover.

• APC – Diversified global super independent.
  • Diversified growth player, gassier in the states, big deepwater and international divisions
  • Management is seasoned and from time to time will make big acquisitions
  • Valuation: 3.4x 2010 CFPS.

• HK- U.S. onshore gas player
  • Gassy (92%), aggressive growth management
  • Second large positions in the Haynesville Shale; has been drilling the biggest wells in the play.
  • One of the lowest cost operators out there so they benefit when other producers get choked off and prices rise.
  • I’ve written extensively about so for more information you can hit the reports tab.
  • Valuation – not cheap, never really is. Can deliver high growth for its size almost with the flip of the sw

• CLR – Oily U.S. Player
  • Biggest Bakken acreage holder
  • Lot of debt to think about near term but the interest is more than easily managed
  • No oil hedges
  • Large potential in the Bakken but also in the Woodford (Midcontinent gas)
  • Valuation: 6x 2010 CFPS is not exactly cheap but you’ll be hard pressed to find a more pure oil mid cap play with the same growth potential and the lack of hedges can mean that that multiple can shrink if the stock price is advancing with oil instead of just with the market.

• NFX- diversified mid-cap global E&P, focused U.S. but with interest international and deepwater components that make it a takeout candidate.
  • seasoned, conservative management
  • more diversified than your typical mid cap E&P, sort of like a mini- Anadarko
  • finding costs should fall precipitously for them this year
  • deepwater and international oil development portfolios along with leading position in the Woodford and perpetually sub-group multiple likely makes them a takeout candidate.
  • Valuation: perennially cheap, strong growth potential in a rising gas market.

• LINE – Largest U.S. upstream MLP
  • hedge 100% next three years
  • long lived assets so declines will be modest
  • application of additional capital can yield high returns in select parts of a diversified property portfolio so they can ramp the distribution beyond hedge levels.
  • current yield of 17.5%

Green Stuff:

• FSLR – Leading, lowest cost U.S. solar provider
  • Management continually sets high targets and meets/exceeds
  • Holy grail of $1 per watt cost achieved last quarter
  • Capacity in place to give significant economies of scale as economy likes
  • Signing deals with U.S. utilities who will increasingly be required to green their generation portfolios
  • Solar high on the current administration’s list of priorites
  • Valuation: perpetually trades at premium forward multiples
• Wind name: Have not found a play I’m content with to hold long term yet in the States.
  

• CLNE – natural gas powered vehicle fleet play

Coal:

• BTU – Leading U.S. coal company, strongly positioned 
  • Demand will continue from the U.S. where 50 to 51% of generation is coal-fired
  • Capacity is quick to adjust to periods of softness, forestalling a crash in coal prices
  • International demand shows no sign of slowing (recession aside)
  • Potential negatives: current administration does not like coal

Oil Service Names:

• HAL or SLB – Big Cap Service
  • Diversified main line oil service, both will take severe hits to 2009 earnings relative to the past couple of years as service pricing has fallen to first half 2006 levels and is probably going to fall another 20% for most of their product lines.
  • I expect  modestly higher oil and natural gas prices later this year and into the next several years

• RIG / DO - over the long term I think they are pretty interchangeable although they’d argue about that.
  • Demand for Deepwater drilling has held up well through the current financial malaise
  • Rigs on order have been delayed and some have been canceled leaving more work for the deep and ultra deep fleets. 
  • Deepwater demand will accelerate as new regions of drilling open up and easier, onshore sources become depleted.

Other Names 

• SU – Oil Sands
  • Pure play on oil.
  • Demand for Canadian crude in the U.S. is bound to only increase as less friendly, politically unstable and unfriendly sources become heavier and more sour to boot.
•   XOM 
  • No real debt, lots of cash
  • Seen as a safety name and the name of first resort when people want to own energy again
  • Growth not forecast or expected in North America …exposure to U.S
  • Nutshell: I think it does well due to the above and not because it does anything interesting, at least not in the Western Hemisphere

• PBR, CEO
  • Two international names with big reserves, and strong government support.
  • Asset value at both is extremely depressed but both have the ability to outgrow their U.S., European, and Russian counterparts over the next decade.