While the narrative of undervalued energy stocks to buy might not seem so pressing right now, investors may want to get in before the wave does. Early last month, the alliance between the Organization of the Petroleum Exporting Countries (OPEC) and non-member oil-producing nations — known as OPEC+ — shocked the market with unexpected production cuts. Essentially, the decision sent the message that foreign entities can influence the dollar’s trajectory.
Considering that these oil-rich countries don’t always have our best interests in mind, it’s always possible that another energy shock can disrupt global affairs. As well, normalization trends from the Covid-19 crisis may help organically boost demand. Notably, vehicle miles traveled have steadily moved higher since the pandemic lull, boding cynically well for cheap energy stocks. However, many energy players can still be had for a discount. Thus, astute buyers may want to check out these ideas for undervalued energy stocks 2023.
| EPM | Evolution Petroleum | $6.28 |
| MGY | Magnolia Oil & Gas | $19.90 |
| PSX | Phillips 66 | $97.07 |
| VLO | Valero Energy | $107.49 |
| ERF | Enerplus | $13.99 |
| DINO | HF Sinclair | $41.93 |
| PBF | PBF. Energy | $32.40 |
Evolution Petroleum (EPM)
An independent energy firm, Evolution Petroleum (NYSEAMERICAN:EPM) focuses on maximizing total returns to its shareholders through the ownership of and investment in onshore oil and natural gas properties in the U.S., according to its website. So far this year, EPM is off to a rough start, losing more than 9% of equity value. Nevertheless, EPM could rank among the best undervalued energy stocks to buy.
According to investment resource Gurufocus, Evolution rates as a significantly undervalued enterprise. By the numbers, EPM trades at a trailing multiple of 5.09. As a discount to earnings, the company ranks better than 65.82% of the competition. Also, EPM trades at 2.99-times operating cash flow. In contrast, the sector median stat pings at 4.5 times.
Additionally, Evolution benefits from myriad other financial strengths. Aside from a cash-rich balance sheet, the company’s three-year revenue growth rate comes in at an impressive 35.9%. Also, its trailing-year net margin smokes the competition of cheap energy stocks at 29.52%.
Magnolia Oil & Gas (MGY)
Featuring extensive acumen in the exploration and production industry, Magnolia Oil & Gas (NYSE:MGY) operates in South Texas. Carrying a market capitalization of $4.27 billion, Magnolia slides nicely among the mid-cap undervalued energy stocks to buy. However, MGY will require some patience, with shares stumbling 10% since the beginning of this year.
Still, the red ink in the charts presents a possible fundamental discount. Right now, MGY trades at a multiple of 4.24. As a discount to earnings, Magnolia ranks better than 71.34% of companies listed in the oil and gas industry. Also, MGY trades at 4.49-times free cash flow. In contrast, the sector median stat is a loftier 7.07 times. As with Evolution Petroleum, Magnolia also enjoys other financial strengths. Primarily, it benefits from a stout balance sheet. Also, it enjoys decent revenue growth and a blisteringly hot net margin of 52.75%.
Finally, analysts peg MGY as a consensus strong buy. Their average price target is $30.42, implying over 52% upside potential.
Phillips 66 (PSX)
A downstream energy specialist, Phillips 66 (NYSE:PSX) may benefit from social normalization trends. Basically, as employers start recalling their workers amid a drive for efficiency against the backdrop of recession fears, traffic volume may increase significantly. If so, Phillips 66 should benefit handsomely due to its aforementioned downstream business. Thus, PSX ranks among the best undervalued energy stocks to buy.
Currently, the market prices PSX at a trailing multiple of 4.13. As a discount to earnings, Phillips 66 ranks better than 72.39% of its oil and gas peers. Also, PSX trades at 0.27-times trialing sales. As a discount to revenue, the company ranks better than 80.15% of its rivals.
Moreover, Phillips 66 enjoys other fiscal attributes, particularly in the operational sphere. Its three-year revenue growth rate comes in at a very solid 14.9%. As well, its EBITDA growth rate during the same period pings at 39.3%, above 78% of its peers. Lastly, analysts peg PSX a consensus moderate buy. Their average price target lands at $126.78, implying nearly 34% upside potential. Thus, it’s well worth consideration for undervalued energy stocks 2023.
Valero Energy (VLO)
Another downstream petroleum specialist, Valero Energy (NYSE:VLO) deserves a closer look as a candidate for cheap energy stocks. According to Zacks Equity Research, Valero beat its first-quarter earnings target on higher refinery throughput. Despite the positive news, the market has a dour outlook for VLO, sending shares down nearly 8% for the year. This might be a mistake.
Right now, the market prices VLO at a trailing multiple of 3.15. Even more impressive, VLO trades at a forward multiple of 5.11. As a discount to projected earnings, Valero ranks better than 72.42% of its oil and gas competitors. Also, it’s worth pointing out that VLO trades at 0.25-times sales. As a discount to revenue, the downstream specialist ranks better than 81.63% of its rivals.
Just as well, the company enjoys other fiscal strengths. Notably, its Altman Z-Score pings at 5.79, indicating high fiscal stability and low bankruptcy risk. Also, its three-year EBITDA growth rate impresses at 45.7%. Turning to Wall Street, analysts peg VLO as a consensus strong buy. Overall, their price target comes out to $160.73, implying 45% upside potential.
Enerplus (ERF)
One of Canada’s largest independent oil and gas producers, Enerplus (NYSE:ERF) holds oil and natural gas property interest in the U.S. and in western Canada. Though a fundamentally relevant enterprise because of its footprint, ERF suffered a sizable loss of 13% since the Jan. opener. Still, contrarian investors may want to keep ERF on their radar of bargain energy stocks.
Currently, the market prices ERF at a trailing multiple of 3.74, which is considerably undervalued compared to other undervalued energy stocks to buy. More enticingly, ERF trades at a forward multiple of 5.4. As a discount to projected earnings, Enerplus ranks better than 65.76% of the oil and gas competition.
Like the other enterprises on this list, Enerplus enjoys other fiscal attributes. Perhaps most conspicuously, its three-year revenue growth rate significantly impresses at 34.2%. On the bottom line, the company prints a trailing-year net margin of 39.06%, smoking most of the field. Looking to the Street, analysts peg ERF as a consensus moderate buy. Their average price target lands at $19.71, implying nearly 40% upside potential.
HF Sinclair (DINO)
A hydrocarbon company with a clever ticker symbol, HF Sinclair (NYSE:DINO) is a diversified energy specialist that manufactures and sells various products, including gasoline, diesel fuel, jet fuel and renewable fuel products. Again, despite significant relevancies, the market doesn’t seem to acknowledge this, sending shares down 16% YTD. Still, it deserves consideration for cheap energy stocks.
On paper, the market prices DINO at a trailing multiple of 3.04, which is significantly undervalued relative to even the best undervalued energy stocks to buy. Enticingly, though, DINO also trades at a forward multiple of 4.83. As a discount to projected earnings, HF Sinclair ranks better than 73.64% of its oil and gas peers.
Just as well, the company benefits from other positive stats. For example, its Altman Z-Score hits 4.03, indicating low bankruptcy risk. Also, its three-year revenue growth rate comes in at 21.8%, above 77% of the field. Lastly, analysts peg DINO as a consensus moderate buy. Their average price target prints $60.91, implying over 46% upside potential.
PBF Energy (PBF)
A petroleum refiner and supplier of unbranded transportation fuels, heating oils and lubricants – among other petroleum-based products – PBF Energy (NYSE:PBF) is a vital cog in the broader infrastructure framework. Unfortunately, that doesn’t matter so much to investors now, who are feeling jitter about the economy. Since the January opener, PBG slipped over 10%. Still, PBF could rank among the bargain energy stocks.
Presently, the market prices PBF at a subterranean forward multiple of 3.49. As a discount to projected earnings, PBF Energy ranks better than nearly 87% of the oil and gas competition. Also, shares trade at 0.88-times tangible book value. Here, the stat ranks better than almost 67% of its peers. Operationally, the company enjoys a three-year revenue growth rate of 22.4%, above 77.9% of the field. Also, the EBITDA growth rate during the same period impresses at a stout 56.5%. On a final note, analysts peg PBF as a consensus moderate buy. Their average price target stands at $53.75, implying nearly 60% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
