7 Cheap Oil Stocks to Consider Now
1As inflation continues to rage, demand continues to rise, and geopolitical tensions remain elevated, oil prices have soared. In turn, investors wonder if there are any cheap oil stocks left to choose from.
Because oil prices soared, energy stocks also rose. Many of these companies – large and small – have seen their stock prices soar. Despite this, many remain at reasonable valuations.
How is it possible?
For starters, these valuations have been incredibly compressed due to the massive selling we’ve seen – in both energy stocks and oil prices – in 2020. Additionally, the surge in oil prices has made many of these much more profitable companies. Now, however, oil is correcting from the highs, falling nearly 30% from high to low. And that caused some of those stocks to drop.
So with all of that in mind, here’s what we’re looking for in cheap oil stocks.
- Pioneer of natural resources (NYSE:PXD)
- Exxon Mobil (NYSE:XOM)
- Conoco Phillips (NYSE:COP)
- Chevron (NYSE:CLC)
- western oil (NYSE:OXY)
- Continental Resources (NYSE:CLR)
- Magnolia oil and gas (NYSE:MGY)
Now, let’s dive in and take a closer look at each.
Cheap Oil Stocks: Pioneer Natural Resources (PXD)
Pioneer Natural Resources is woefully under-followed, in my opinion. The company sits on some of the most prestigious real estate in the Permian Basin and, in my opinion, CEO Scott Sheffield “just gets it.”
During the company’s quarterly conference call in mid-February, Sheffield explained why the company was not hedged on oil prices. This means that when oil was $70, $80, and even $90 a barrel, Pioneer wasn’t selling a boatload of futures to lock in that price.
Even before the trouble in Eastern Europe happened, he realized that oil prices were probably going much higher.
During the conference call, Sheffield said that with oil prices above $90 a barrel, PXD shareholders were looking at dividend payouts “in excess of $24 a share.” Regarding the question of whether oil prices could easily hit $150, he said:
“Demand is stronger than it has ever been in the world and OPEC and OPEC Plus will run out of capacity by the end of ’22. This has even been claimed by several countries in the world. ‘OPEC and more OPEC. This therefore ignores the situation of Iran and Ukraine.
…[T]there is no reason to hedge when obviously things could easily move north… if you look at our current 0% hedge position on oil. If you’re talking about a $90 price environment, every $5 change in oil now represents $750 million in incremental cash flow for us.
I don’t know where the oil will end up, but I know Pioneer will make money from the spike.
Exxon Mobil (XOM)
As the largest energy company in the United States, Exxon Mobil weighs in with a market capitalization of around $345 billion. Despite the turmoil created by the novel coronavirus pandemic, Exxon Mobil has enjoyed a stunning rebound.
Despite the recent pullback, stocks are up 150% from the low. And despite the rally, stocks are trading at just 13 times earnings this year. That’s a surprisingly low valuation for the biggest stock in the major stock market.
Most industries and sectors have declined over the past one, three, six and 12 months. No energy, however. It continues to climb as energy prices continue to rise. Although bad for the consumer, it’s great for industry results.
Analysts expect revenue to grow nearly 30% this year for Exxon, while estimates call for earnings growth of nearly 50%. Additionally, the stock pays a dividend yield of 4.3%.
Cheap Oil Stocks: ConocoPhillips (COP)
Pioneer is not the only one not to hedge in this environment. The company explained that it believes “shareholders are buying our stock because of the upside it represents in commodity prices and the upside torque we have in the way we’ve created the company.”
With that in mind, CEO Ryan Lance isn’t kidding. He added that “[ConocoPhillips prefers] stay uncovered, and frankly, the cover wouldn’t do much [to] to help. So we have a very strong balance sheet, which helps us on the downside and shareholders should expect full exposure on the upside that we’ve seen to date.
Similar to Exxon, ConocoPhillips shares are trading at around 11 times earnings, with revenue expected to rise more than 20%, while earnings are expected to climb nearly 75%.
Remember, Conoco is a conglomerate. As energy prices continue to rise, so does its potential. This opens the door to a higher stock price down the road, helped by the fact that it is one of the cheap oil stocks.
If you look at the companies that make up the Energy Select Sector SPDR ETF (NYSEARC:XLE), you won’t find the typical diversity you see in many other ETFs. About 45% of the fund is tied to two stocks: Exxon and Chevron.
Chevron occupies a slightly larger position, weighing 22.27% of the XLE, while Exxon sits at 22.22%. Either way, these two stocks make up a large portion of the top holdings.
With Chevron holding a market cap of $318 billion, that’s no surprise either. Like its slightly larger brethren, Chevron is ranked as a cheap oil stock because the shares trade at just 17 times earnings. It also pays a dividend yield of 3.5%.
Additionally, analysts expect revenue and profit growth of 24% and 52% this year, respectively, showing how rising energy prices are expected to boost top line revenue and bottom line. .
Cheap Oil Stocks: Occidental Petroleum (OXY)
Not too long ago we wrote about Occidental Petroleum, when we were looking at a handful of energy stocks to buy. Unlike, say, Pioneer Natural Resources – which is all-in-one in one area – Occidental has its hands all over the world.
Of course, this global reach presents both the opportunity and risk. But clearly, it is the first that is brought to light. Stocks have boomed lately and Warren Buffett’s involvement Berkshire Hathaway (NYSE:BRK.ANYSE:BRK.B) sent the stock soaring even further.
The stock actually trades at around 15 times earnings, which is incredible given the growth. While analysts expect revenue growth of “just” 16%, that’s still quite impressive, even if it lags some of its peers. Meanwhile, consensus expectations call for earnings growth above 155%.
With forecasts of more than doubling, it’s no wonder this one has become a hot commodity.
The best part? Buffett is not done. After amassing a $3 billion stake in the company – which is remarkable given its market capitalization of over $55 billion after the big rally – Berkshire increased its stake by 50%, racking up an additional $1.5 billion in equity.
At this valuation, this is not a surprise.
Continental Resources (CLR)
Like some of the others on the list, as well as the last company on it, Continental Resources operates unhedged. The company noted that it was an “unhedged oil producer” but had begun “accumulating natural gas hedges for 2022 through the end of 2023.”
That said, management believes higher prices are in play, stating, “We are largely unhedged for all as we believe market fundamentals are supporting price participation due to rebalancing in supply and price. demand.”
Many would say crude prices are down about 25% from the highs. What they don’t realize is that they are still higher by about 10% in the last month and 28% in the last six months.
Although volatile, these companies print money with leaking oil. And that includes Continental and CLR stocks.
Cheap Oil Stocks: Magnolia Oil & Gas (MGY)
Finally, we have Magnolia Oil & Gas. With a market capitalization of nearly $5.5 billion, it’s the smallest company on this list, but that doesn’t mean it should be ignored. Magnolia Oil & Gas is headquartered in Houston, Texas. which works “primarily in southern Texas, in the heart of the Eagle Ford Shale and Austin Chalk formations.”
The shares are trading at a measly 8 times earnings, although analysts are not so optimistic about its growth. They expect earnings growth of just 20% on revenue growth of 17%.
With its small size, there are more risks, but also more opportunities. As management explained on February 17:
“Improved drill times at Giddings will translate to more wells and more capital for the same number of rigs. Due to our strong balance sheet, Magnolia is fully capturing the current high commodity prices by remaining…entirely no covered.
…[W]We remain completely unhedged for our oil and gas production, allowing us to take full advantage of higher commodity prices. »
So even if the stock doesn’t get much respect, just know that it should roll in the money as long as oil prices stay high.
As of the date of publication, Bret Kenwell had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
Bret Kenwell is the director and author of Future Blue Chips and is on Twitter @BretKenwell.