10 investments poised to soar

Fastest-growing rank: 45
Get quote: UNT
3-year average annual return: 26%

If the energy industry were a zoo, then Unit might be the duck-billed platypus, a hybrid creature with an unusual mix of features. Though the Tulsa-based company focuses primarily on natural gas, it operates a few lines of business. Founded in 1963 as a contract-drilling company, it has since diversified into exploration and production as well as gathering and processing natural gas. While drilling still accounts for some 60% of revenues, the mix of businesses means Unit is often misunderstood or neglected by investors seeking pure plays, according to analysts and money managers who track the stock.

"Unit falls between the cracks, because the drilling analysts don't really understand the E&P side," says Whitney George, portfolio manager with the Royce family of funds. "The E&P guys don't understand the drilling. So this thing is neither fish nor fowl."

Whatever it is, Unit has thrived. Revenues have jumped from $187 million in 2002 to nearly $1.2 billion last year and an expected $1.36 billion in 2008. Net income has shot up from $18 million to $312 million in 2006, or from 47 cents a share to $6.72. Yet the stock still trades at just seven times projected 2008 earnings. "The valuation looks particularly compelling to us, as if it is pricing in a very dire scenario for energy in general," says George.

As with Chesapeake, Unit's stock performance is closely linked to the price of natural gas, so the next couple of quarters may be rocky. (Indeed, analysts expect earnings per share to sag this year, before rising to $7.21 in 2008.) And the longer-term prospects are appealing. "We pound the table on Unit," says SunTrust Robinson Humphrey energy analyst John Gerdes, who expects natural gas prices to rebound next year. "We think over time this value will be unlocked."

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