The past two years haven’t been kind to energy stocks. Supply gluts and plummeting oil prices turned gushers into dry wells. And even with oil prices rebounding a bit in 2016, the broad Energy Select Sector SPDR (NYSEARCA:XLE) still remains down nearly 5% over the past 52 weeks.
For some former highflying energy stocks, the rebound simply hasn’t happened yet. That means there are a host of cheap energy stocks that are trading for low nominal prices.
There’s obviously risk in dabbling in cheap energy stocks. While share price doesn’t necessarily reflect the quality of a stock, you typically don’t see single digits without a reason. But there can be plenty of reward for investors who have some risk capital and a little courage — especially if oil prices firm up.
Should you bet the rent check on them? Not in this lifetime. But just a small, calculated bet on one or two of these potential turnaround stories could set your portfolio for overperformance across the next year or two.
In no particular order, here are 10 of the best energy stocks to buy under $10.
Energy Stocks Under $10: Chesapeake Energy (CHK)
CHK Stock Price (7/20): ~$4.75
Gallons of ink have been spilled writing about the fate of Chesapeake Energy Corporation (NYSE:CHK), and the story has been pretty much the same for years. Chesapeake’s story is a debt story. In an effort to build itself out as America’s largest natural gas player, founder and former CEO Aubrey McClendon loaded Chesapeake full of debt to fund the expansion.
However, natural gas prices tanked, and so did CHK stock. The company has spent a couple of years cleaning up the mess.
Chesapeake might finally be winning the debt war, however. CHK continues to buy up its debt for cheap, including a recent debt-for-equity swap. Yes, that did dilute existing shareholders, but it does remove a huge monkey off Chesapeake’s back — great news, especially if you weren’t already in CHK but are considering it now. The company also is continuing to sell assets to bring in more cash to pay down debt and pay for drilling.
It looks increasingly likely that Chesapeake will survive to fight another day, and with oil and natural gas prices finding a floor and rising up off it — thanks to hot weather and low supplies — “another day” might be here sooner or later. That makes CHK stock one of the best energy stocks for a calculated gamble.
Energy Stocks Under $10: WPX Energy (WPX)
WPX Stock Price (7/20): ~$10.00
Williams formed WPX to help keep its pipelines full of gas and its processing facilities humming. That meant the vast bulk of WPX’s production was dry natural gas, and just like Chesapeake Energy, WPX Energy suffered when natural gas prices did.
But that was then, and this is now. And now, WPX is plowing headfirst into shale oil and natural gas liquids (NGL) production.
Since 2014, WPX has sold more than $2.7 billion in assets, with much of that coming from dry gas production. At the same time, it has added a ton of oily assets in the low-cost Permian Basin. The result? Whereas WPX previously was producing about 75% natural gas, based on its projections, 60% of future productions will be oil and NGLs.
That’s wonderful news considering that oil has higher margins than natural gas. Yet many investors are still painting WPX in its former light. Don’t listen: This is your chance to land one of the highest-potential energy stocks at just about $10 per share.
Energy Stocks Under $10: Oasis Petroleum (OAS)
OAS Stock Price (7/20): ~$8.70
The big, bad Bakken isn’t so big or bad these days. Sure the region still is a major crude oil production area for the U.S. … but collapsing West Texas Intermediate (WTI) prices have clipped the sails of once-mighty energy stocks operating there. That includes shale superstar Oasis Petroleum Inc. (OAS).
OAS shares have dwindled all the way down to below $9 per share and a $1.5 billion market cap. And it’s far from out of the woods; analysts estimate Oasis will lose money this year and next.
But there’s still plenty of reason to be bullish on Oasis.
For starters, OAS has one of the largest concentrated positions in the Bakken — over 506,000 acres in the Williston Basin. That huge acreage position has given Oasis plenty of reserves, with the firm estimating that it has more than three decades’ worth of potential on the books. That huge reserve portfolio makes OAS a major buyout target.
Even if that buyout never comes, rising oil prices could turn projections for losses into … well, smaller losses, or perhaps a small profit.
Any improvement should be enough to drive one heckuva rebound in battered OAS shares.
Energy Stocks Under $10: Whiting Petroleum (WLL)
WLL Stock Price (7/20): ~$8.80
Speaking of the Bakken, Oasis rival Whiting Petroleum Corp (NYSE:WLL) has also been hit by hard times. Like Oasis, Whiting is one of the top energy stocks in the region and features a great acreage and asset base.
However, Whiting’s issues more resemble Chesapeake’s.
Like most energy stocks, WLL has a sizable debt load — currently around $5.3 billion. That’s not an untenable position amid high oil prices, but when oil collapsed, it became a yoke around Whiting’s neck.
But unlike poorer-quality energy stocks, Whiting recently was able to do a debt-for-equity swap and remove $1.06 billion of the debt from its balance sheet. WLL was hit hard thanks to investors who felt they were cheated by dilution, but ultimately this was the right move. Taking hefty interest payments off the books will help Whiting’s cash situation, which in turn will help the company better weather a lower-oil-price environment.
If you’re not in WLL, the nearly 30% one-month drop is a perfect buying opportunity for one of the Bakken’s brightest stars.
Energy Stocks Under $10: Denbury Resources (DNR)
DNR Stock Price (7/20): ~$3.30
How bullish are you on long-term energy prices? If you’re really bullish, Denbury Resources Inc. (NYSE:DNR) is the kind of speculative bet you want to make right now.
Denbury isn’t a traditional exploration and production firm. Instead, it’s a specialist in what’s called enhanced oil recovery using CO2 injection. So Denbury buys up older wells and fields, injects them with carbon dioxide, then collects any extra oil that is pushed up from the well.
When oil prices are high, that’s a great place to be. But $40 per barrel? Ouch.
DNR shares are off more than 80% over the past two years, and the company had to cut off its once-lucrative (albeit short-lived) dividend in 2015. But like many of the energy stocks on this list, Denbury is doing the right things to survive long enough to see another rebound in oil. That includes beefing up its hedge book and doing debt exchanges at cheaper/better rates.
Ultimately, these moves will allow DNR to kick the can long enough to survive the low-price environment. And when high prices do return, Denbury could take off like a rocket.
Energy Stocks Under $10: Exco Resources (XCO)
XCO Stock Price (7/20): ~$1.30
Looking for a lotto ticket? Then Exco Resources Inc (NYSE:XCO) could be your play.
Thing is, Exco can’t get its act together. At first, XCO was a natural gas-focused energy producer. That had it plowing bucks into the Marcellus and other shale fields in the Northeast and Appalachia. When that didn’t work (thanks, low prices!), it suspended its efforts there and moved into the oil-rich Eagle Ford and other areas of Texas. But Exco was late to the party, and its acreage is costly to drill.
And, given how much cash is needed to drill — and XCO doesn’t have that cash because oil prices have tanked — Exco has fallen on hard times.
Exco is asset-rich but cash-poor, which means it’s time for “strategic alternatives.” Management at EXCO is looking into a number of measures for the company, including an outright sale and various debt exchanges. With oil rising, it may actually get lucky with a sale, as its acreage will actually be able to turn a profit.
Make no mistake: This low-priced energy stock is really just a gamble — but it’s one that could pay off in spades.
Energy Stocks Under $10: Seadrill Ltd (SDRL)
SDRL Stock Price (7/20): ~$3.20
If lower oil prices have been bad for onshore drilling, then offshore has been a downright disaster.
That’s a problem for Seadrill Ltd (NYSE:SDRL). As one of largest providers of state-of-art offshore drilling rigs and ships, Seadrill has essentially been destroyed by low oil prices. It’s simply not profitable to drill in the ocean for oil right now.
But because Seadrill has one of the best fleets in the business, the long-term picture for SDRL stock might be a little better. After all, rising oil prices make drilling offshore a better gamble.
In the meantime, Seadrill is working hard to kick the can down the road and survive until a price recovery happens. That has included debt-for-equity deals, as well as working with creditors to extend the maturity of several large pieces of debt. While the debt extension doesn’t remove the debt, it certainly does free SDRL from some more immediate circumstances. Additionally, Seadrill continues to work with its customers — mostly state-owned oil firms — to keep drilling. Any revenue is better than no revenue.
Keep in mind, it may be several years until the deepwater drilling sector recovers. But if Seadrill does survive, you’re looking at a stock that could double several times over.
Energy Stocks Under $10: EnCana Corp (ECA)
ECA Stock Price (7/20): ~$8.00
Canada is a fertile hunting for energy stocks. However, EnCana Corp (USA) (NYSE:ECA) has been a perpetual thorn in investors’ sides for years now.
Encana’s days as an energy problem child began when it spun off its oil assets to turn all its focus to natural gas, just as prices were peaking. Subsequently, management dove head-first into oil assets … just as prices were peaking.
But with prices for natural gas on the rise, ECA might finally live up to its potential, ast he firm is finally focused on doing things right. Encana is honing in on now-core areas of the Permian, Eagle Ford, Duvernay and Montney Formation. That’s low-cost, high production fields in both natural gas and shale oil. And EnCana continues to dump non-core assets in an effort to improve its balance sheet and fund drilling programs in its good fields. Together, the moves might finally begin bearing fruit.
Even if it doesn’t, Encana’s $6.6 billion market cap and rich asset base make it digestible as a buyout target.
Energy Stocks Under $10: Trina Solar (TSL)
TSLStock Price (7/20): ~$8.50
Solar stocks have just as much to gain from higher oil and natural gas prices, because when fossil fuels are more expensive, they help solar energy companies compete on price.
If you’re looking to play on the sun, Trina Solar Limited (ADR) (NYSE:TSL) could be one of the best solar plays out there.
Trina Solar’s problems are twofold. First, it’s a Chinese company, so the general market rout in the country took much of the fire out of it and other Chinese stocks. Secondly, lower oil prices have meant lower prices for renewable energy stocks.
But TSL is positioned to win over the long-term. That’s in part because Trina Solar isn’t some fly-by-night Chinese stock — it’s the largest producer of efficient solar panels and has delivered more than 15 GW worth of panels worldwide. This year, TSL expects to ship between 6.3 and 6.55 GW worth of photovoltaic modules. Trina also decided to follow the rest of the major solar stocks and began building, operating and selling large-scale solar farms.
TSL is off 23% this year, but it should regain its mojo once oil prices rebound.
Energy Stocks Under $10: Cloud Peak Energy (CLD)
CLD Stock Price (7/20): ~$2.60
It’s no secret that coal has been has been hit even harder than natural gas and oil in recent years. But risk-hungry investors can find potential boomers — such as Cloud Peak Energy Inc. (NYSE:CLD) — in the space.
Cloud Peak Energy is one of the largest U.S. coal producers and the only coal stock 100% focused on the Powder River Basin. PRB coal is low-sulfur, and high-quality, essentially producing less “junk” when it’s burned. If a utility is going to use coal to generate electricity, this coal will help them meet their environmental obligations, and as a result, PRB coal trades at a premium to other forms.
Despite this advantage, demand still is on the decline, both domestically and abroad. Last quarter, for instance, CLD saw its revenues slip as international customers reduced their coal purchases.
But there has been some evidence of rising coal demand and prices overseas. That could end up bolstering the case for Cloud Peak Energy, which has ample liquidity and a great asset base that makes it, long-term, one of a select few coal plays worth dancing with.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.