Top 3 Oil and Gas Penny Stocks for 2019

The energy sector is booming. As of October 2018, third-quarter earnings were expected to increase 21.9% from the third quarter of 2017. Eighty-four percent of the 51 companies in the S&P 500 reported earnings above analyst expectations for third quarter 2018, which was higher than the long-term average of 64% and above the prior fourth quarter average of 77%

For 2018 and 2019, InvestorPlace projected earnings of $66.9 billion and $72.6 billion, significantly higher than 2017 profits. The reasons for these bullish predictions are tax cuts and crude recovery. The energy sector has paid a median tax rate of 36.8% for the last 11 years. The tax rate is now 21%, which frees up capital that can be used for maintenance projects and growth.

Global crude demand is also a factor. According to MarketWatch, Goldman Sachs Group Inc (NYSE:GS) is predicting an increase in crude demand to 1.85 million barrels in 2018 due to a weaker dollar that will negate the effect of a trade war.

The low-priced energy stocks we have featured below survived the oil slump, despite faltering, and look to rebound now that the price of oil is recovering. However, investors should be cautious in dealing with these so-called "penny stocks." All figures are current as of October 2018.

The stock price for Petro River Oil saw a dramatic drop starting in 2013 and now stands at $1.08 per share. The company develops oil internationally with a presence in Oklahoma, California, Ireland, England, and Denmark. Petro River Oil uses 3D seismic analysis to find oil resources. The company has shown increased cash reserves in the past several quarters, so it could be in a position to acquire assets to take advantage of higher oil prices. (For more, see: 5 Biggest Risks Faced by Oil and Gas Companies.)

• Average Volume: 15,644
• Market Cap: $19.151 million
• P/E Ratio (TTM): N/A
• EPS (TTM): -$1.18

The Canadian oil and gas company is focused on the Western Canada Sedimentary Basin. As oil prices have slid, Bellatrix stock has slid over the last year falling from $2.59 per share in August 2017 to its current price of $1.16 per share. The company is expected to post a per-share loss in the near term. However, the stock – and the company – could be primed for a comeback.

Bellatrix is expected to grow profits by nearly 70 percent over the next few years with higher cash flows expected and higher valuations for the stock price. The average 12-month price target for the stock is $1.85 per share, which represents a 93% gain from current levels. Nonetheless, analysts are a bit tepid on the stock. This is one for investors to keep an eye on.

• Average Volume: 303.03
• Market Cap: $69.79 million
• P/E Ratio (TTM​): N/A
• EPS (TTM): $-1.60

Granite focuses on the Western Canada Sedimentary Basin. The company declared a dividend of CAD $0.023 per share in July 2018 and again in August 2018. Management has reduced costs significantly to make up for declining oil prices, and debt is relatively low. The fact that the company has not eliminated its dividend bodes well, and it currently offers a dividend yield of 17.09%. Granite's stock price has fallen over the last year from $2.50 to around $1.24 per share. This is one to watch to see if it turns around.

• Average Volume: 20.91
• Market Cap: $46.994 million
• P/E Ratio (TTM): N/A
• EPS (TTM): -$0.27

There is a saying among investors, "a rising tide lifts all boats." But the rising tide of oil prices will not lift a leaky boat. Penny oil stocks on this list have seen better days. They are not startups; they are has-beens. In other words, these plays are for those who see significant odds that the companies can turn around. To be sure, the drop in oil prices was not the fault of any of these companies, but that does not change the fact that they will have to make some quick moves to reverse their financial fortunes. (For additional information, read: A Guide to Investing in Oil Markets.)