Cheap stocks remain intriguing in good times or bad. And energy is an interesting sector in which to find some great deals. Despite the macroeconomic factors that have transpired to give energy a rough time of late, it still makes sense to consider an investment in energy.
Because although there is a continued march toward green initiatives, energy stocks will still represent the fuel that gears global economies.
So let’s take a look at these cheap plays in energy:
- Golar LNG Ltd. (NASDAQ:GLNG)
- TC Energy Corp. (NYSE:TRP)
- Diamondback Energy (NASDAQ:FANG)
- Williams Cos. (NYSE:WMB)
- Cimarex Energy (NYSE:XEC)
- Enterprise Products Partners (NYSE:EPD)
- Helix Energy Solutions Group (NYSE:HLX)
Cheap Stocks: Golar LNG Ltd. (GLNG)
Golar LNG operates in the midstream liquified natural gas industry. It owns and operates a fleet of 27 LNG logistics vessels across three different classes. Golar maintains 16 LNG carriers, eight floating storage and regasification units, and three floating liquefaction vessels. The company is essentially a midstream marine logistics company working to bring upstream LNG resources to downstream partners.
Operations touch many corners of the world including Brazil, Malaysia, Norway, the U.K., Cameroon, Croatia and Bermuda.
At less thanr $12 per share with all 13 analysts who rate it giving it a “buy,” there’s a lot of reason to speculate in GLNG stock.
The company recorded a TCE, a measurement of daily revenue used in shipping, of $39,100 for its fleet in Q3. This exceeded guidance of $35,000 and was a result of an 80% utilization rate. The utilization rate was a year-over-year increase. Golar LNG expects its TCE figure to rise above $50,000 per day during Q4. Roughly two-thirds of its 2021 schedule is filled and the company expects to exceed an 80% utilization rate as well. It also looks like the company will potentially issue an IPO, which will separate its Brazilian operations from the corporate structure in the near future.
Golar is certainly worth speculation at its price with the potential appreciation that could follow an IPO.
TC Energy Corp. (TRP)
TC Energy carries a P/E ratio of 12.29 making it cheap relative to the broader energy markets. Two comparable ETFs that represent the energy sector carry significantly higher P/E ratios. The SPDR S&P Oil & Gas Exploration & Production ETF (NYSE:XOP) averages a P/E ratio of 21.54 across its holdings. Meanwhile, the Energy Select Sector SPDR ETF (NYSE:XLE) carries a P/E ratio of 43.8 currently. TRP stock stands out among the sector for its value. Investors looking for a low dollar cost relative to earnings should certainly consider speculating on this equity.
Before jumping into specifics regarding its business and operations, it is also worth noting that TC Energy has a target stock price averaging $52.77. Its current $44 share price implies more than 22% upside for investors who jump in.
TC Energy is a Canadian energy infrastructure company operating pipelines across North America. It also operates seven power generation facilities. Despite the historically tough year across markets and within energy, the company reported utilization levels in line with seasonal norms.
TC Energy is directing capital toward long-term partnerships backed by agreements for long-term business. It expects that 98% of EBITDA will come from those partnerships once its $37 billion secured capital program is fully invested. In short, the company looks to have very predictable cash flows and operations moving forward.
Cheap Stocks: Diamondback Energy (FANG)
Diamondback Energy is an upstream and midstream oil and natural gas company. The company primarily focuses on acquiring what it calls unconventional assets in upstream onshore reserves. The company focuses on both vertical and horizontal drilling. It also operates a limited partnership focused on midstream infrastructure, also within the Permian Basin.
Diamondback Energy is clearly looking to execute on a plan that leverages its deep experience in the Permian Basin in order to position itself as a premier upstream and midstream operator. Its executive team averages 24 years of experience in the industry and geography.
Diamondback currently has two acquisition projects underway which should be immediate wins. It acquired QEP Resources and Guidon Energy for $2.15 billion and $862 million respectively. These deals will be finalized in Q1 of 2021, but importantly Diamondback Energy believes the deals to be immediately accretive prior to any synergies. That means the company expects cash flow and returns at acquired prices.
Wall Street is strong on FANG stock and the last 12 months have seen insider purchases of 262,766 shares and sales of 69,357.
Williams Cos. (WMB)
Investors who want a cheap energy play on an absolute cost basis might speculate on Williams Cos.
Shares cost slightly more than $20. Yet, I’ll admit that this is not exactly a cheap stock based on its P/E ratio of 124.52. Yet, WMB stock’s overweight status and target price which ranges as high as $29 per share indicate it isn’t a problem.
Williams Cos. is an infrastructure company in natural gas and petroleum. It operates pipeline assets both onshore and offshore in the Gulf of Mexico. An increasingly important consideration for energy companies is ESG ratings. Investors are becoming more and more concerned with environmental, social, and corporate governance measures. Williams Cos. finds itself in the upper 10 percent of peers as rated by both Sustainalytics and the Dow Jones Sustainability Index.
Despite the tough year that was 2020, Williams Cos. reported Q3 net income of $308 million, up $88 million over Q3 in 2019. The company’s year-to-date EBITDA outpaced that of 2019 through Q3 at $3.769 billion.
CEO Alan Armstrong added “Williams is well positioned to meet our pre-Covid 2020 guidance ranges for earnings, adjusted EBITDA and cash flow set in December 2019. We attribute the durability of Williams today to the premier positions of our natural gas infrastructure as well as the proactive measures we have taken in recent years to reduce leverage, increase stability and lower costs.”
Cheap Stocks: Cimarex Energy (XEC)
Cimarex is an exploration company which drills, finishes, and operates wells in oil and natural gas. XEC stock is cheap from the perspective of its forward P/E ratio of 9.97, putting it into the top-third of the industry. Shares are modestly priced at the mid-to-high $40s. But for investors who would like to take a deeper look at Cimarex Energy, it’s important to know that of the 28 analysts currently covering it, 23 have it rated as a “buy.”
Cimarex explores, drills, and operates wells in the Permian Basin of west Texas into New Mexico, and throughout Oklahoma and the Texas panhandle.
The company has had a tough year, which is reflected in its cash flow statement. 2019 net income approached $260 million through the first three quarters of the year. However, 2020 saw a net loss of $1.992 billion in the same period. Yet the company is in a better position in terms of cash equivalents having gone from less than $24 million in 2019 to over $270 million in 2020.
Cimarex Energy’s dividend remains strong and the company has not reduced it since 2017.
Enterprise Products Partners (EPD)
EPD stock has a P/E ratio of 12.28, which is much lower than those of the SPDR S&P Oil & Gas Exploration & Production ETF and the Energy Select Sector SPDR ETF mentioned above. It is also relatively cheap at just over $20 per share with an implied upside of 25.57% based on average target stock prices.
The business comprises pipelines, storage, processing plants, fractionation and port terminals. Full year net income for 2020 dropped 17.39% from 2019. However, distributable cash flow only decreased from $6.6 billion to $6.4 billion, with $2.5 billion of that being retained in the enterprise itself.
Volumes were essentially steady across the company’s various areas of measurement. Importantly, none were seriously affected relative to 2019 levels. The fourth quarter was particularly strong for Enterprise Products Partners with a gross operating margin of $2.1 billion. This eclipsed Q4 of 2019 in which gross operating margin was $2.0 billion proving the company’s resiliency.
EPD stock should interest investors looking for midstream, cheap energy with a focus on fee based infrastructure investment growth.
Cheap Stocks: Helix Energy Solutions Group (HLX)
HLX stock is cheap in the sense that it resides in penny stock territory at $4.60 per share. That said, it is somewhat middle of the road as measured by P/E ratio. Nevertheless it does look worthwhile with a “buy” rating and strong EPS beats in each of the last four quarters.
Helix Energy is an offshore energy company focused on underwater construction, maintenance and salvage as a service to offshore operators. The company utilizes offshore platforms and ships in servicing offshore operators. It also uses robots.
Helix Energy Solutions will release full year earnings reports on Feb. 22. The most recent earnings report shows that the company didn’t suffer dramatically in revenue terms as a result of the pandemic. Through the first 9 months of 2020, company revenue decreased by only 1.29%. However, income from operations was problematic in one particular area. While robotics and production facilities incomes were strong, well intervention operations suffered.
This is likely a result of well intervention occurring in isolated conditions at sea in which pandemic related risks make it prohibitively dangerous. Vessel utilization was 68% in Q3 of 2020, yet 97% in Q3 2019.
HLX stock still makes sense as a cheap play in energy. It should rebound once vessel utilization is normalized and has proven otherwise that it remains strong.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.