Executive Decision: Devon Energy's Larry Nichols
Cramer likes natural gas companies that trade at a discount to their net asset values, and right now Devon Energy is trading at a huge discount.
The stock has dropped to $45.50 from a high of $127, but Credit Suisse valued the net assets at $74. Benchmark Capital went as high as $108. Jefferies offered an $88 price, putting its estimate in between the two. But no matter which price target you choose, Devon looks to be worth much more the present market value.
How do you account for the discrepancy? Chairman and CEO Larry Nichols called it short-term problem. Natural gas prices are weak, and will be for a while, but a correction will come “very quickly,” he said. As companies scale back their drilling and U.S. production comes down, that will reduce supplies, sending the price back up.
“And when that market comes back, which it will,” Nichols said, “we can take advantage of it.”
Devon has plenty of acreage to drill, and the CEO put the number of identified undrilled locations at 27,000. There’s also a balance sheet here so seemingly solid the company doesn’t need to hedge oil and gas prices. And a change in SEC rules will offer new stability to Devon’s earnings. Cramer and Nichols discussed all of this and more during Monday’s Mad Money. Watch the video to find out why Cramer thinks this stock is such a great investment opportunity.
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