2 Stocks Under $3 That Could Generate Huge Returns for Your Portfolio

Profitable companies with stocks trading under $3, like Bankers Petroleum Ltd. (TSX:BNK) and Delphi Energy Corp. (TSX:DEE), could generate huge returns for your portfolio. Should you speculate on one of them?

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Beginner investors often think that stocks trading under $3 are bargains, but this is not the case by any means. More often than not, stocks fall below $3 because of a weak financial performance by the company, because it has flooded the market with too many of its shares, or because of accounting or legal problems.

One way to find a true bargain is to look for the stocks of companies that remain profitable and trade at inexpensive forward valuations compared with their five-year averages, because it provides fundamental support to your speculation. I have scoured the market and found two stocks from the energy sector that meet these criteria perfectly, so let’s take a closer look at each companies’ first-quarter earnings results and their stocks’ valuations to determine which would be the best fit for your portfolio.

1. Bankers Petroleum Ltd.

(All figures are in U.S. dollars)

Bankers Petroleum Ltd. (TSX:BNK) is a Canadian-based oil producer with operations in Patos-Marinza, the largest onshore oilfield in Europe.

In the first quarter of fiscal 2015, its net income decreased 96.5% to $879 million, its earnings per share decreased 96.9% to $0.003, and its revenue decreased 50.1% to $72.4 million compared with the year-ago period.

At today’s levels, Bankers stock trades at 50.8 times fiscal 2015’s estimated earnings per share of $0.05 and 36.3 times fiscal 2016’s estimated earnings per share of $0.07, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 82.5.

I think the company’s stock could consistently command a fair multiple of at least 50, which would place its shares around $3.50 by the conclusion of fiscal 2016, representing upside of more than 37% from current levels.

2. Delphi Energy Corp.

Delphi Energy Corp. (TSX:DEE) is a Calgary-based company that explores, develops, and produces oil and natural gas in western Canada.

In the first quarter of fiscal 2015, its net income increased 175.9% to $2 million, its earnings per share increased by $0.01 to $0.01, and its revenue decreased 53.8% to $22.65 million compared with the year-ago period.

At current levels, Delphi’s stock trades at 43.3 times fiscal 2015’s estimated earnings per share of $0.03 and 21.7 times fiscal 2016’s estimated earnings per share of $0.06, both of which are inexpensive compared with its five-year average price to earnings multiple of 184.4.

I think this company’s stock could consistently trade at a fair multiple of at least 40, which would place its shares around $2.40 by the conclusion of fiscal 2016, representing upside of more than 84% from today’s levels.

Could your portfolio use a speculative stock?

Bankers Petroleum and Delphi Energy could generate significant returns for their shareholders if they can operate efficiently and further invest in their businesses to drive growth. Foolish investors seeking a speculative play should take a closer look and consider initiating positions in one of them today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

More on Energy Stocks

A meter measures energy use.
Energy Stocks

Energy Investing: What Every Canadian Needs to Know

Here’s what savvy Canadian investors need to know about energy investing today, straight from Motley Fool Hidden Gems advisor Jim…

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

Gold vs. Oil: Which Commodity Is a Stronger Bet for Inflation?

Increasing commodity prices make gold stocks and oil stocks attractive assets to own, but oil stocks might be the better…

Read more »

TSX Today
Energy Stocks

TSX Today: What to Watch for in Stocks on Thursday, June 23

The U.S. Federal Reserve chair Jerome Powell’s testimony before Congress could continue to keep TSX stocks highly volatile today.

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

Why Tourmaline Oil Stock Still Looks Strong

Tourmaline Oil has been on a dividend-hike streak this year.

Read more »

oil and natural gas
Energy Stocks

3 Cheap TSX Energy Stocks With Fast-Growing Dividends

TSX energy stocks are down 10% in the past week. Here are three cheap oil stocks I'd pick up for…

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

From a Big Bank: Suncor (TSX:SU) Is the Best-in-Class Operator

A big bank recommends a buy rating for an oil bellwether because of its strong free cash flows and restored…

Read more »

TSX Today
Energy Stocks

TSX Today: Why Stocks Could Fall on Wednesday, June 22

Renewed selling pressure in global stock markets and a sharp drop in commodity prices could take TSX stocks lower at…

Read more »

Oil pumps against sunset
Energy Stocks

Suncor Energy (TSX:SU): Is the Stock Now Oversold?

Suncor stock looks cheap today. Here's why.

Read more »