POWR Stock of the Week Under $10: Amplify Energy (AMPY)

The term goldilocks has begun to make the rounds in economic circles early this year, as unemployment remains low, interest rate cuts appear to be on the horizon, and companies are gearing up for a soft economic landing. And, as we move away from recession fears, it appears that oil could be bottoming out as well. A great reason to take a look at energy stocks early in 2024.

And one oil stock that is aggressively putting its house in order for a run higher in the new year, is Amplify Energy (AMPY). Amplify is a U.S. based oil and gas exploration and production company. The company’s properties primarily consist of operated working interests in producing and undeveloped leasehold acreage and in identified producing wells in North America. Amplify also owns non-operated working interests in producing and undeveloped leasehold acreage.

Amplify is currently employing a three pronged strategy to ramp up profit for shareholders. First, it is divesting underperforming assets and has engaged an investment bank to sell those assets. The company hopes to put the assets on the market this quarter and realize a return for shareholders soon thereafter. 

Second, the company is bringing certain oil field services in house. In an effort to reduce costs and increase efficiency, Amplify is forming an internal oilfield services company, Magnify Energy Services. Assuming the successful standup of Magnify, Amplify hopes to expand the services it performs on its own wells over time, recognizing additional cost savings. 

And Third, Amplify is increasing operations in its Beta field. If it can drill and complete wells for approximately $5 to $6 million, the company expects internal rates of return (IRR) to exceed 100% at current oil pricing. And these returns should be higher if oil actually is bottoming. 

The stock, which looks like it is putting in lows along with oil, is trading at extremely low valuations right now at only 0.6x earnings, 4.2x projected earnings, 0.7x sales, and 2.3x free cash flow. This with operating margins running at over 44%.

With those valuations, not surprisingly Amplify is an A rated stock on our POWR Ratings Value component. It actually has a score in the  99th percentile of all the stocks we track in that component. 

So, if it takes a little longer than expected for oil to turn higher here, Amplify is trading at levels that look like a bargain even with oil trading at current levels. A move higher in the oil complex could get Amplify trading back toward $10 from its current level of just over $6.

What To Do Next?

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AMPY shares were trading at $6.35 per share on Thursday afternoon, up $0.17 (+2.75%). Year-to-date, AMPY has gained 7.08%, versus a 2.34% rise in the benchmark S&P 500 index during the same period.

Jay is a former professional market maker who cut his teeth trading on the floor of the CBOE. With more than 20 years of experience trading and investing, his focus is on making professional strategies accessible to everyone, which is exactly what does in his highly profitable POWR Income and POWR Stocks Under $10 investment advisory services.

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