Energy prices are in the proverbial toilet. Crude oil and natural gas prices are still trending lower as supplies are showing no signs of dropping. And with demand falling off by the wayside (thanks, China!) it looks like prices aren’t in danger of rebounding anytime soon.
What is a secret is that among the wreckage, a number of former highfliers — including some honest-to-goodness blue chips — are trading for dirt cheap, both in valuation and in simple nominal share price. Many quality energy stocks can be had for less than 10 bucks.
Yes, there is risk in dabbling among these cheap stocks. No stock gets this low without a reason. However, there can be plenty of reward for investors willing to wager some risk capital and take the plunge.
So, if you’re willing to play in the energy sector, here are six cheap stocks to buy for less than $10.
Cheap Energy Stocks to Buy: EnCana Corporation (USA) (ECA)
ECA Stock Price: ~$8.20
EnCana (ECA) has every reason to be on this list of cheap stocks. It keeps making the wrong decisions at exactly the worst times possible.
A few years ago — right when natural gas was peaking — ECA’s management decided to spin-off all of its heavy and conventional oil production as separate firm. EnCana floundered as prices crashed, and oil-rich Cenovus (CVE) flourished.
To reinvent itself again, ECA added tons of oil exposure — just as prices were starting to peak. ECA shares have been punished as a result.
Still, EnCana could be one of the best cheap stocks to buy in the energy patch. After pruning and tweaking its portfolio of assets, ECA might finally have it right, resembling the balanced EnCana of old. The firm has dumped low-margin dry-gas assets and plowed heavy capital spending into wet-gas and shale oil-rich basins. The Permian Basin has become a focus for ECA, and its oil and gas liquids production is 35% higher this year than last. Meanwhile, natural gas production has dwindled.
As EnCana becomes more balanced, it could be worth the gamble.
Cheap Energy Stocks to Buy: Ultra Petroleum Corp. (UPL)
UPL Stock Price: ~$5
Want to play rising natural gas prices without betting on futures contracts? Then Ultra Petroleum (UPL) could be the stock for you.
The vast majority of Ultra’s production — 93%, to be exact — comes from dry natural gas. That’s a problem considering how far prices for the fuel have cratered and explains why UPL is suddenly so cheap.
However, things are a bit better at Ultra than at first glance.
For starters, UPL operates in Wyoming’s Greater Green River Basin. This long-life play is one of the largest conventional natural gas fields in the country and features really low drilling expenses. That helps UPL survive this dips in gas prices better than some rivals. The firm actually managed to report 21 cents in adjusted earnings per share. While that number is about half of what it made last year — when natural gas prices were higher — that still shows that Ultra can survive downturns.
UPL at roughly $5 per share is a gift. All it will take is a slight bump in natural gas prices to really move the needle.
Cheap Energy Stocks to Buy: WPX Energy Inc (WPX)
WPX Stock Price: ~$8.60
Pipeline and midstream firm Williams Companies (WMB) is a huge superstar in the industry. Spinoff WPX Energy (WPX) … not so much. That’s because it was mainly focused on producing dry gas, as its former parent is one of the largest midstream firms focused on the fuel.
These days, it’s a different ball of wax for WPX … but it’s still trading roughly 40% off last year’s highs, in the single digits as things stand.
WPX has moved into two of the biggest and cheapest regions for producing crude oil — the Bakken shale and the Permian Basin. Via a private buyout, WPX added a whopping 92,000 net acres right in the core of the play. That will allow it scale out production, reduce drilling costs and really get the oil moving.
The buyout instantly adds about 22,000 barrels per day of crude oil and liquids to its already record production, and includes other benefits, including a better hedging book and 375 miles’ worth of pipeline infrastructure.
This is a watershed moment for WPX.
Cheap Energy Stocks to Buy: Consol Energy Inc. (CNX)
CNX Stock Price: ~$7.80
Consol Energy’s (CNX) place on this list of cheap stocks makes sense from 10,000 feet. After all, its two main products — coal and natural gas — are in the dumps.
But here are a couple reasons why CNX might be worth more than its roughly $8 per share pricing:
CNX still trades along with the rest of the hated coal sector, but it’s more than a coal name. In fact, today, only about 60% of revenues come from coal, and that number is on the decline. To further distance itself from coal, CNX formed MLP CNX Coal Resources LP (CNXC), where it will drop down much of its thermal coal assets — helping to monetize these assets amid a dour fuel market.
Additionally, capex spending in key areas of the Marcellus and CNX’s midstream MLP, CONE Midstream Partners LP (CNNX), will help Consol increase production and profits from its E&P businesses. That division continues to help on the earnings front and minimize the damage from coal.
CNX remains one of the best cheap stocks to buy for an eventual rebound in natural gas.
Cheap Energy Stocks to Buy: Seadrill Ltd (SDRL)
SDRL Stock Price: ~$6.10
Lower oil prices have made it too expensive to drill in the ocean’s deepest, harshest areas — bad news for advanced drilling rig operators like Seadrill Limited (SDRL).
Still, when it comes to offshore firms, SDRL still might be offering the most bang for your investment dollar — if it manages to survive!
With one of the best fleets in the business, many of SDRL’s customers are state-owned and national oil firms. They have a different mandate than a publicly traded energy producer; it’s less about profits and more about getting oil into the hands of the people.
That provides SDRL with a large (though admittedly shrinking) backlog of work, with many contracts lined up for multiple months. This backlog at least provides operational cash to keep the ship humming. Additionally, Seadrill is scrapping plenty of unused and less-than-ideal rigs, removing them from the marketplace and providing cash infusions from the scrap.
This could just be enough to keep SDRL afloat long enough for an oil market recovery.
Cheap Energy Stocks to Buy: Sanchez Energy Corp (SN)
SN Stock Price: ~$5.50
Sanchez Energy’s (SN) pressing issue is relatively high debt in a low-priced-oil environment.
Still, SN could be worth a shot.
Sanchez owns plenty of good acreage in the prolific and cheap-to-produce Eagle Ford shale. Those 226,000 net leasehold acres are located right in the liquids-rich window of the play and churn-out steady production. That’s something you could see a major energy firm shelling out serious cash for.
The problem is that Sanchez’s Tuscaloosa Marine Shale assets — which aren’t profitable any time soon — overshadow the good in the Eagle Ford.
However, the firm might have a way to monetize those assets even if an outside buyer doesn’t come along. Namely, via MLP Sanchez Production Partners LP (SPP). Sanchez has been dropping production and midstream infrastructure assets into the MLP, which should help cash flow and allow it SN has been dropping down assets- both production and midstream infrastructure- into the MLP. That’ll help on the cash flow front and allow it to keep drilling and prospecting.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.