3 Energy Stocks That Could Double in 2015

By Markets Fool.com

Energy stocks have been pummeled over the past six months as the falling price of oil has hurt the industry's potential future profits. But when an entire sector sells off, there are often opportunities for investors who take a long-term perspective. After all, we're not going to stop using energy anytime soon.

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Here are three stocks I think provide the potential to double in 2015 if the energy sector recovers.

Image source: LINN Energy.

Seadrill : Few stocks have been beaten up during oil's fall more than Seadrill. Shares are trading 74% below their 52-week high and management had to slash a $4.00 per share dividend down to $0. But now that the company has just a $5.2 billion market cap the upside is tremendous.

What investors should keep in mind short-term is that Seadrill's contract coverage is very high for 2015 and into 2016. Ninety-one percent of its floater fleet has contract coverage for this year, and 74% is already covered next year. In the jack-up fleet the coverage is 74% and 39%.

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Put another way, Seadrill has a total of $24 billion in contract backlog with about $6.5 billion this year and $6 billion in 2016. This year, the company will be fine even if oil prices stay low all year.

Offshore drilling served by drillships like this offers both the most risk and the most upside for Seadrill. Image source: Seadrill.

The questions for Seadrill begin late in 2015 and into 2016. If oil prices are below $50, it's unlikely that explorers will begin new drilling programs in lucrative ultra-deepwater field or drill in harsh environments, where Seadrill's jack-up rigs command high rates. But if the price of oil recovers -- say to $80 per barrel -- companies will continue to drill for oil, and Seadrill's rigs will be in demand again. Dayrates may fall, but with one of the newest fleets in the industry the rigs won't go unused.

If oil does rise, it'll be a boon for investors, because cash flow from existing rigs is already very strong. In the last twelve months Seadrill's operations have produced $1.8 billion in cash, and 8 newbuild rigs due in 2015 should expand that cash flow in the future. Even if operations stay flat, the stock could double in 2015 to a $10 billion market cap, just 5.6 times operating cash flow. Of course, a recovery in oil is required for that to happen, and no one knows if that will happen or not. The risk is high with Seadrill, but so is the reward.

CARBO Ceramics : If you thought Seadrill's year was bad, CARBO Ceramics is down 77% from its 52-week high because investors assume shale drillers won't need nearly as many high quality proppants in 2015.

It's very true that shale drilling, and therefore CARBO Ceramics' sales, will decline in 2015, but there are a few things to keep in mind. A well can be "fracked" multiple times, so the company doesn't necessarily need new wells to make sales, and the initial drilling operation is the most expensive for explorers.

If the fracking market does shake out marginal players, it could also be good for CARBO Ceramics' market share. The company says its proppants lead to about 50% more production than using sand as a proppant, and high quality drillers may see that value more than marginal players trying to cut costs.

CARBO Ceramics is also debt free, reducing risk for investors. If oil prices rise in 2015 and U.S. shale drilling picks up steam, we could see a major recovery in the stock. Shares trade at just 11 times trailing earnings and yield a 3.7% dividend. That's a good value with tremendous upside potential if oil prices pick up.

Residential solar power is spreading like wildfire in the U.S. Image source: SunPower.

SunPower : So far I've focused on oil related stocks, but another stock being thrown out with other energy stocks is SunPower, a leading solar company. The thing is that oil prices have little to nothing to do with solar energy. Solar competes with electricity prices, and in most of the world that means coal, natural gas, and nuclear energy. Unless you're living in Hawaii, a Caribbean island, or the Middle East, you probably don't get electricity from oil.

Shares of SunPower are down 44.5% from their 52-week high, and as the stock fell the company was raising its own expectations. At an analyst day in November, the company said it would triple capacity over the next five years to nearly 4 GW. It also expects 2015 earnings to be between $1.10 and $1.50 per watt, indicating a P/E ratio of about 16. Given its history of beating expectations, I think the high end of earnings expectations is probably conservative.

That's all on top of assets SunPower is adding to its balance sheet. In 2015, the company will add 300-400 MW of projects to the balance sheet that could be worth another $1.6 billion in sales (assuming $4 per watt sales price). The company will also likely launch a yieldco in the next few months, creating a subsidiary it can push projects down to in the future, keeping value instead of selling to project buyers.

The future is bright for SunPower, and whether oil prices rise in 2015 or not the stock could double on improving operations alone.

The article 3 Energy Stocks That Could Double in 2015 originally appeared on Fool.com.

Travis Hoium owns shares of Seadrill and SunPower. Travis Hoium has the following options: long January 2015 $5 calls on SunPower, long January 2015 $7 calls on SunPower, and long January 2015 $40 calls on SunPower. The Motley Fool recommends Seadrill. The Motley Fool owns shares of Seadrill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.