Hess Is Undervalued

Hess is undervalued: So far, institutional investors (IIs) have not noticed that Hess Corp.'s upstream operations (exploration and production) should benefit from high oil prices in the $75-80 per barrel range.

Right now, IIs are fixated on the lower margins of downstream operations, which Hess and other refiners are coping with, as a result of recession-induced sluggish U.S. gasoline sales. But take advantage of that institutional tentativeness to scoop-up some shares now at a bargain price.

Here's the bargain: The First Call FY2009/FY2010 EPS estimates for HES are $1.99 to $4.25. Apply a 20 multiple to the shares and HES should easily trade at $80-85 by the end of 2010, and probably higher. According to my analysis, HES is headed north.

Technically, Hess' stock chart has been in a choppy uptrend for about six-months: hence it's not a stock for the squeamish. Don't Buy HES is you can not tolerate a 10-15% price drop in one month -- it could happen.

2010 Outlook: Hess is a long-term play, but if you're looking to sell HES within the year, take your profits after it rises to $78-79, if it fails to clear $80.

Stock Analysis: Hess Corp is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in HES now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your HES position before March 2010. Sell/stop loss if you were to buy shares in this company: $47.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.