Carrizo: A Cheap Small-Cap Oil and Gas Name
With oil hovering around $100 for the past few weeks, “Mad Money” host Jim Cramer believes this is a new era of persistently high oil prices. He thinks one way to play those higher prices is Carrizo Oil and Gas, which has a lot of exposure to the Eagle Ford and Marcellus shales.
“There have been some bumps in the road with Carrizo ... but if you’re willing to take the chance on a small-cap oil and gas name, then I think it's a terrific buy here—very cheap with a ton of production growth,” he said.
Carrizo, which has a market capitalization of slightly more than $1.1 billion, got slammed over the summer when the price of oil fell. It has since come back up, but the stock is still well off its highs. And Cramer thinks that makes the name attractive.
However, there are also some real reasons for its underperformance, Cramer said. The company had production issues in the Eagle Ford shale last quarter and there are concerns over its North Sea asset. Cramer isn’t too worried since management has stated it has new Eagle Ford wells coming on soon and it expects to get its North Sea project online in mid-2012.
Carrizo also has an “overspending problem,” Cramer said. There’s about a $200 million deficit between the cash the company’s expected to generate in 2012 and the amount of money it plans to spend. However, Carrizo plans to raise about $100 million in natural gas production in the Barnett shale.
(Related: Cramer's Play on High Oil Prices)
Cramer thinks it’s safe to focus on the positives, like Carrizo’s increased focus on oil production and the 50 percent production growth the company’s forecasting for next year. The company is also looking for joint venture partners to help finance new projects, and Cramer thinks the company could be a takeover target.
However, if you want something safer, Cramer suggests EOG Resources or ConocoPhilips .