EOG Resources (EOG): A “never sell” stock

By Timothy Lutts, Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 12/18/12 Sign up for free Cabot Wealth Advisory e-newsletter

I recently polled my editors to work up a new “never-sell” list of stocks, and I’ll be writing about them in the weeks ahead, one at a time, so as not to overwhelm you.

The first stock is unusual, in that the company sells not a revolutionary new product or service but a basic commodity. Its name is EOG Resources (EOG) and what it sells is oil and natural gas.

(Note: The E stems from Enron, whose name was mud for a while, but those troubles are long gone, and you shouldn’t let them influence your thinking.)

What should influence your thinking is the fact that a revolution has taken place in the oil and gas industry, and that revolution is fracking, which enables access to vastly more oil and gas deposits at lower cost and is likely to lead to energy independence for the U.S. as early as 2020.

Understanding that, it makes a lot of sense to invest in a leader in the industry.

Headquartered in Houston, EOG is one of the largest independent oil and gas companies in the U.S., with nearly eight billion barrels of oil equivalent (BOE) of natural gas and more than two billion (BOE) of oil and natural gas liquids. These deposits are largely in the Bakken (North Dakota) and Eagle Ford (Texas) shales, and those numbers are growing.

For 2012, analysts are looking for earnings growth of 44%, and for 2013, 16%, but that’s probably conservative.

In the latest quarter, EOG’s after-tax profit margin was a whopping 15.9%, which is astounding for the industry. The stock’s forward PE ratio is 19, and the dividend is 0.6%, and is raised nearly every year.

Finally, EOG has been named to Fortune Magazine’s list of “100 Best Companies to Work For” for the past six years.

Now, what’s interesting about this stock pick is that it comes from Tom Garrity, the ace editor of Cabot Small-Cap Confidential. Tom has never mentioned EOG in that letter, and that’s no surprise; it doesn’t fit the model for his letter. Most stocks Tom recommends have never been noticed by most investors.

But the fact that of the 31 stocks recommended since the start of 2009, Tom still owns 20, with an average open profit of 31.50% per stock, is a big reason to take notice of any stock he recommends.

So, you could just plunge in and buy EOG here. Or, you could check out Tom’s regular letter, and see what unknown stock he uncovers next. That’s what I recommend. Learn about Cabot Small-Cap Confidential.