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Welcome to Episode #352 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
With WTI oil prices falling 7 weeks in a row, many of the energy stocks have plunged as well. Some are sitting at 52-week lows. There would appear to be a bunch of deep value.
Is the sell-off overdone? Is this a buying opportunity in the energy stocks again?
Or is it a trap?
Different Focuses Within Energy
Within the oil and natural gas complex, there are different focuses. There are some companies that are considered Big Oil, which produce oil and natural gas, do refining, transportation and own service stations. They may also produce petrochemicals.
There are some companies that are purely producers of oil and natural gas in the United States. Some produce only in Canada.
And then there are also the companies on the services side, which help increase drilling productivity and efficiency.
Most of these stocks have seen a sell-off and many of these companies are cheap.
Definition of Value Versus a Trap
Reminder, you can have a company that has a low P/E and other valuation metrics, but it may not be a true value stock. Instead, it may be a trap. How can you tell the difference?
Look at the earnings estimates for this year and next. Are earnings expected to grow next year? If so, then the stock is likely to be a value, and not a trap. Falling earnings are a sign that maybe the stock is cheap for a reason.
Exxon Mobil is one of the largest oil companies in the United States. It produces oil and natural gas globally and does refining, distribution, chemicals and owns service stations. Exxon Mobil recently announced it was acquiring Permian Basin driller Pioneer Natural Resources.
Shares of Exxon Mobil are down 10.4% year-to-date and are trading near 1-year lows. It’s cheap on a P/E basis, with a forward P/E of 10.8. Exxon Mobil pays a dividend of 3.9%.
Chevron is also one of the largest oil companies in the United States. It’s also a big oil company, with refining and service station operations. It recently announced it would acquire Hess Corp which will give it exposure to the Guyana oil fields.
Shares of Chevron have dropped 19.9% year-to-date and are trading near 1-year lows. It’s cheap, with a forward P/E of just 10.7. Like Exxon Mobil, it also pays a dividend, currently yielding 4.2%.
Diamondback Energy is an independent oil and natural gas producer in the Permian Basin in the United States. Shares are bucking the negative trend, up 9% year-to-date.
Yet Diamondback Energy is cheap. It is trading with a forward P/E of 7.8 and a PEG ratio of 0.4. Diamondback Energy also pays a dividend, which is yielding 2.3% on Zacks. I believe that does not include the variable component.
Matador Resources produces oil and natural gas in the Delaware Basin and Eagle Ford shale. Shares of Matador Resources are down 6.2% year-to-date.
It’s dirt cheap with a forward P/E of just 7.5. Matador Resources also pays a dividend, yielding 1.5%. Tracey owns Matador Resources in the Insider Trader portfolio.
SLB is a global technology company driving energy innovation. It has a global presence in more than 100 countries.
Shares of SLB have fallen 9.6% year-to-date but have really taken it on the chin in the last 3 months, as oil prices have weakened. Shares are down 20.5% during that time.
SLB is cheap with a forward P/E of 16.3. It also pays a dividend yielding 2.1% and has a share buyback program.
Is SLB a deep value or a trap?
What Else Do You Need to Know About Cheap Energy Stocks?
Tune into this week’s podcast to find out.
[In full disclosure, Tracey owns shares of CVX in her own personal portfolio.]
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Energy Stocks: Deep Value or Traps?
Welcome to Episode #352 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
With WTI oil prices falling 7 weeks in a row, many of the energy stocks have plunged as well. Some are sitting at 52-week lows. There would appear to be a bunch of deep value.
Is the sell-off overdone? Is this a buying opportunity in the energy stocks again?
Or is it a trap?
Different Focuses Within Energy
Within the oil and natural gas complex, there are different focuses. There are some companies that are considered Big Oil, which produce oil and natural gas, do refining, transportation and own service stations. They may also produce petrochemicals.
There are some companies that are purely producers of oil and natural gas in the United States. Some produce only in Canada.
And then there are also the companies on the services side, which help increase drilling productivity and efficiency.
Most of these stocks have seen a sell-off and many of these companies are cheap.
Definition of Value Versus a Trap
Reminder, you can have a company that has a low P/E and other valuation metrics, but it may not be a true value stock. Instead, it may be a trap. How can you tell the difference?
Look at the earnings estimates for this year and next. Are earnings expected to grow next year? If so, then the stock is likely to be a value, and not a trap. Falling earnings are a sign that maybe the stock is cheap for a reason.
5 Energy Stocks: Deep Value or Traps?
1. Exxon Mobil Corp. (XOM - Free Report)
Exxon Mobil is one of the largest oil companies in the United States. It produces oil and natural gas globally and does refining, distribution, chemicals and owns service stations. Exxon Mobil recently announced it was acquiring Permian Basin driller Pioneer Natural Resources.
Shares of Exxon Mobil are down 10.4% year-to-date and are trading near 1-year lows. It’s cheap on a P/E basis, with a forward P/E of 10.8. Exxon Mobil pays a dividend of 3.9%.
Is Exxon Mobil a deep value or a trap?
2. Chevron Corp. (CVX - Free Report)
Chevron is also one of the largest oil companies in the United States. It’s also a big oil company, with refining and service station operations. It recently announced it would acquire Hess Corp which will give it exposure to the Guyana oil fields.
Shares of Chevron have dropped 19.9% year-to-date and are trading near 1-year lows. It’s cheap, with a forward P/E of just 10.7. Like Exxon Mobil, it also pays a dividend, currently yielding 4.2%.
Is Chevron a deep value or a trap?
3. Diamondback Energy, Inc. (FANG - Free Report)
Diamondback Energy is an independent oil and natural gas producer in the Permian Basin in the United States. Shares are bucking the negative trend, up 9% year-to-date.
Yet Diamondback Energy is cheap. It is trading with a forward P/E of 7.8 and a PEG ratio of 0.4. Diamondback Energy also pays a dividend, which is yielding 2.3% on Zacks. I believe that does not include the variable component.
Is Diamondback Energy a deep value or a trap?
4. Matador Resources Co. (MTDR - Free Report)
Matador Resources produces oil and natural gas in the Delaware Basin and Eagle Ford shale. Shares of Matador Resources are down 6.2% year-to-date.
It’s dirt cheap with a forward P/E of just 7.5. Matador Resources also pays a dividend, yielding 1.5%. Tracey owns Matador Resources in the Insider Trader portfolio.
Is Matador Resources a deep value or a trap?
5. SLB (SLB - Free Report)
SLB is a global technology company driving energy innovation. It has a global presence in more than 100 countries.
Shares of SLB have fallen 9.6% year-to-date but have really taken it on the chin in the last 3 months, as oil prices have weakened. Shares are down 20.5% during that time.
SLB is cheap with a forward P/E of 16.3. It also pays a dividend yielding 2.1% and has a share buyback program.
Is SLB a deep value or a trap?
What Else Do You Need to Know About Cheap Energy Stocks?
Tune into this week’s podcast to find out.
[In full disclosure, Tracey owns shares of CVX in her own personal portfolio.]