Over the last six months, prices for oil have plunged a staggering 60%. That huge decrease has put prices on par with numbers not seen since the Great Recession.
With that in mind, it’s easy to comprehend the similar drop in many energy stocks. The uber-popular and broad-based proxy for the energy sector — the Energy Select Sector SPDR ETF (NYSEARCA:XLE) — is down by more than 12% in the last three months alone.
After all, lower prices for oil — and natural gas for that matter — equals lower profits for the producers of energy.
However, the continued drop in both oil and energy-related equities is producing some tantalizing values and deep discounts. The XLE can only be had for a price-to-earnings ratio of 16, which is well below the broad market’s P/E. That discount is perhaps even more evident considering that falling rig counts could have signaled the bottom in oil prices.
An energy recovery could be at hand.
For investors, the time to snap up some of these deeply discounted energy producers could be now before it’s too late. Here are three cheap energy stocks to buy today.
Deep-Discounted Energy Stocks To Buy Today #1: Devon Energy Corp (NYSE:DNV)
The hydraulic fracturing boom hasn’t been so kind to Oklahoma-based E&P firm Devon Energy Corporation (NYSE:DVN). Originally a natural gas producer, DVN hit a rough patch a few years ago when prices for natural gas fell among rising supplies.
Like many natural gas-focused energy stocks, Devon worked hard to add more oil assets into its mix in order to reduce its dependency on dry gas production. That worked well until the recent downturn. DVN stock is down about 22% as oil has declined.
That decline, however, has made DVN a big bargain. Shares of the energy stock can now be had for a P/E of less than 12.
Driving DVN’s growth is actually that focus on oil, but in a more concentrated fashion. Recent asset sales have allowed Devon to hone in a few key growth areas and shales. That has made the firm a more lean and mean profit-making machine over the longer term.
Additionally, its recent midstream hook-up with EnLink Midstream LLC (NASDAQ:ENLC) and EnLink Midstream Partners LP (NASDAQ:ENLK) not only provide steady cash flows, but lower DVN’s cost of capital for expansion.
All in all, DVN has positioned itself for long-term growth. And yet, in the short term, DVN shares are priced at bargain levels.
Deep-Discounted Energy Stocks To Buy Today #2: Canadian Natural Resources Ltd (USA) (NYSE:CNQ)
If you think energy stocks in the United States have had it rough, try moving to Canada. Western Canadian Select (WCS) heavy oil is already averaging an $18 to $25 per barrel discount to U.S.-produced West Texas Intermediate (WTI) crude. That discount has had a huge impact on Canadian energy stocks.
For example, Canadian Natural Resources Ltd (USA) (NYSE:CNQ) has sunk 35% since oil has cratered.
That drop is mostly due to CNQ’s big bet on oil sands crude oil. The firm’s Horizon Oil Sands project is an expensive bet on the future — one that investors aren’t too pleased with considering the low-priced energy environment.
However, unlike some oil sands energy stocks, Canadian Natural was able to buy those assets on the cheap when everyone was going gaga for shale. And once the project is fully completed, it will be able to churn out roughly 500,000 barrels per day, up from 115,000 daily barrels. That’s a lot of production coming online when prices for oil should be much higher.
Meanwhile, CNQ’s broad portfolio of low-risk projects in the North Sea, which are tied to higher priced Brent crude, generate billions in revenue today.
At a P/E of just 13, you’re getting steady revenue today and a huge future source of revenue later on with CNQ stock shares.
Deep-Discounted Energy Stocks To Buy Today #3: EOG Resources Inc (NYSE:EOG)
When you are the poster child for high-growth shale-focused energy stocks, you just know things are going to get ugly for you when it all turns sour.
Shale superstar EOG Resources Inc (NYSE:EOG) has fallen by about 22% in response to oil prices. Some of that drop is justified, but most of it is not.
That’s because EOG literally operates in some of the lowest cost shale fields in the U.S., including the Eagle Ford, Permian Basin and Bakken shale. By operating in these fields and using its huge size, EOG has been able to realize some of the highest margins per barrel of any shale producer. Those high margins will also allow it prosper during the oil price downturn.
EOG estimates that it will see a 10% rate of return per well if oil drops to $40 per barrel. That’s an enviable position for EOG to be in when compared to many other energy stocks. At $40 per barrel, a lot of them will be forced to close up shop.
And considering that EOG trades for a basically what the average energy stock can be had for — a P/E of 16 — that shows its true discount even further.
As of this writing, Aaron Levitt was long the Vanguard Energy ETF (NYSEARCA:VDE), which holds DVN and EOG.
