When your major source of income is selling products tied to underlying commodity, you’re going to be hurting when the price for that natural resource falls. So, it shouldn’t come as surprise and it’s no secret that the rout in oil prices decimated many energy stocks and sent their share prices down into the basement.
Many simply couldn’t make it with oil at sub-$40 per barrel levels.
And even with recent gains, energy stocks — as represented by the Energy Select Sector SPDR (ETF) (XLE) — are still down about 11% over the last 52-weeks.
I don’t know about you, but that sort of drop makes my inner value hound go crazy. Energy stocks are still looking like huge bargains. And they are … especially, when gazing at various fundamental metrics like price-to-earnings ratios, PEG Ratios and dividend yields. The sector hasn’t been this cheap in years.
Perhaps even more so when you consider that oil prices have been on the march upwards.
For investors, the time to buy cheap energy stocks could be now. Here are three energy firms that fit the bill.
Cheap Energy Stocks to Buy Now: Cenovus Energy Inc (USA) (CVE)
If you think the energy stocks in the United States have suffered at the hands of lower crude oil prices, you haven’t been to Canada.
Oil sands producers such as Cenovus Energy Inc (USA) (CVE) have been hit harder as Western Canadian Select benchmarked crude oil is trading to an even bigger discount to WTI and Brent. Specifically, even bigger issues have hit CVE recently — namely a mega-wildfire that is ripping havoc in Alberta.
However, all of this has made CVE stock drop like a stone — about 15% over the last 52-weeks. It has also made CVE a really cheap stock as well. The oil sands giant can be had for a P/E of just 13. This P/E is actually much cheaper than the sector average — as represented by the XLE (about 14 points cheaper).
For that cheapness, investors get one of the largest producers and refiners of oil sands and WCS crude oil in Canada.
Earnings estimates for CVE have been pretty poor thanks to the downturn in crude oil and the fire, so its price/earnings-to-growth ratio is rather high. However, Cenovus was recently upgraded in a major way based on rising crude oil prices. Those higher oil prices should make their way into the firm’s earnings estimates soon.
Overall, CVE makes for an interesting turn around play among the cheap energy stocks.
Cheap Energy Stocks to Buy Now: Marathon Petroleum Corp (MPC)
A few quarters ago, the refiners were riding high on lower crude oil prices. Crack spreads were at some of the largest they’ve been in decades. However, as more refiners pushed more crude through their systems, a glut of gasoline was created. And energy stocks like Marathon Petroleum Corp (MPC) sank hard. MPC was basically cut in half on the lower crack spreads.
That created a huge opportunity for investors. Today, MPC can be had for just a P/E of 9.43 and juicy yield of 3.72%.
Marathon still has one of the largest refining complexes in the country — with seven facilities and a host of midstream infrastructure. More importantly, output by those refiners has been slowed and the glut of gasoline has waned.
With slightly higher crude oil prices and gasoline demand, margins are starting to bounce back at MPC and its rivals. As a result, earnings estimates for the oil stock have started to creep upwards once again. Not that it was unprofitable before … just less profitable with lower spreads.
At the same time, growth initiatives involving its master limited partnership — MPLX LP (MPLX) — have continued at a rapid pace. Those dropdowns and buy-outs will continue to push more tax-advantaged cash back into MPC’s coffers.
For investors, MPC represents one of the best refining bargains out there, and a great cheap energy stock to buy.
Cheap Energy Stocks to Buy Now: Dril-Quip, Inc. (DRQ)
With oil down in the dumps, it’s no surprise that oil stocks are some of the cheapest energy stocks out there. With a P/E of just 13.27, Dril-Quip, Inc. (DRQ) is one of the cheapest.
DRQ may not be as famous as rival National-Oilwell Varco, Inc. (NVO), but it’s still a champion in the industry. The firm is a leading manufacturer of highly engineered drilling and production equipment … the kind of stuff that is best suited for use in harsh environment applications and fracking. The high pressures require high-tech drill bits and such.
The firm’s backlog has shrunk in recent quarters as orders from Brazil continue to be canceled. However, with the rising oil prices, CAPEX spending is starting to trickle back in. As a result, DRQ earnings estimates are still quite positive and the firm is predicted to see growth.
But there’s another way for investors to win with DRQ: as a buy-out candidate. Dril-Quip’s smaller size and specialty nature has often made it a candidate for a take-out. With the recent drop in shares, its market-cap is at an easy-to-swallow $2.37 billion. That could be enough of a discount for a larger energy firm to bite.
Overall, DRQ is one of the best energy stocks in the services industry and it may not be here much longer.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.