SPECIAL REPORT The Top 7 Stocks for 2024

7 Very Oversold Energy Stocks to Buy Right Now

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  • If worries about demand cease to outweigh tightening oil supplies, even these seven oversold energy stocks could soar.
  • Callon Petroleum (CPE): Undervalued CPE stock could move higher, for reasons recently cited in an analyst upgrade.
  • DHT Holdings (DHT): The market may be underestimating the sustainability of DHT’s 14.43% dividend.
  • Devon Energy (DVN):  DVN stock could bounce back/resume paying high dividends, as this E&P becomes less natural gas-focused.
  • Keep reading for more oversold energy stocks to buy!
Oversold Energy Stocks - 7 Very Oversold Energy Stocks to Buy Right Now

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With the recent run-up in crude oil prices, there are not of names that fit perfectly into the oversold energy stocks category. Scores of stocks in the energy sector, particularly shares in exploration and production companies, have zoomed higher in line with crude oil price trends.

Yet among the 263 names in this sector trading on major exchanges (according to Finviz), there are few that stand out as stocks still underappreciated by the market.

Some may believe that crude oil’s return to around $80 per barrel is temporary, a product of  Russian and Saudi production cuts announced over the past few weeks.

More recently, concerns about oil demand have outweighed the production news.

However, while it may prove difficult for oil prices to re-hit $90, $100, or even more per barrel, the supply issue could help to keep prices elevated, and not only because of cuts from OPEC+ members. Decreasing oil drilling rig counts point to decreased domestic production down the road.

If worries about demand cease to outweigh tightening oil supplies, even these seven oversold energy stocks could soar. Let’s take a look, and see what makes each of them great opportunities at current prices.

Callon Petroleum (CPE)

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Callon Petroleum (NYSE:CPE) is E&P company headquartered in (where else?) Houston, Texas.

Callon’s oil and natural gas operating assets are located primarily in the Delaware and Midland basins that are within the famed Permian basin in West Texas.

Unlike many other oil & gas names, CPE stock has not joined in on the recent rally. As a result, shares continue to trade at a lower valuation (5 times forward earnings) compared to peers (most of which sport multiples in the high single-digits). So, what makes Callon one of the energy stocks to buy? Sentiment may soon improve.

As InvestorPlace’s Josh Enomoto has pointed out, analysts at Citi have upgraded CPE shares. In their upgrade, the analysts cited several factors, including greater-than-expected success from a recent acquisition, that could enable the stock (at around $36.50 per share today) to make its way towards $45 per share.

DHT Holdings (DHT)

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At first glance, it’s hard to argue that DHT Holdings (NYSE:DHT) is one of the oversold energy stocks. Up by more than 23.5% over the past year, shares in this Bermuda-based oil tanker operator appear to trade at a price reflective of the “boom and bust” nature of this space.

However, investors could be pricing-in too much uncertainty into DHT stock. Very large crude carrier (or VLCC) tanker rates have stayed elevated this year. This has enabled the company to both keep paying out its 14.43% dividend, as well as engage in share repurchase efforts.

That’s not all. Long-term trends for VLCC rates look very favorable. Even if this cannot translate into a big move higher for DHT, if these trends enable the tanker owner to maintain (or even raise) its high payout, this energy stock could produce strong returns for your portfolio.

Devon Energy (DVN)

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Devon Energy (NYSE:DVN) is another energy play that hasn’t exactly joined in on the sector rally.

Shares in this Oklahoma City, Oklahoma-based E&P firm are down 22.6% over the past twelve months. Admittedly, a big reason for this is that Devon has historically been focused more on natural gas production than on crude oil production.

With natural gas prices not rallying like crude oil prices have recently, it makes sense why DVN stock has merely tread water in recent months.

However, as a Seeking Alpha commentator recently pointed out, the company’s focus has shifted. In recent years, Devon has increased its exposure to crude oil.

This leaves the company poised for growth in the coming years. Besides fueling share price appreciation, improved results may also mean higher base dividends as well. DVN’s base payout currently gives it a forward yield of just 1.61%.

Ecopetrol (EC)

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Based in the Latin American nation of Colombia, Ecopetrol (NYSE:EC) is one of the riskier oil and gas stocks. This may work to your advantage if you can stomach the jurisdictional risks.

Since 2022, political headwinds (including Colombia’s election of an anti-oil president) have weighed on shares.

As a result, EC stock has become one of the oversold energy stocks. Shares today trade for just 5.5 times earnings. Shareholders have also received in more recent quarters a dividend totaling around 83 cents per share.

Even if future dividends come in lower than this amount, the stock could still sport a double-digit forward yield.

Even when accounting for high uncertainty, EC’s low valuation and high yield more than make up for it. Tread carefully, but if you’ve been looking for a high-risk, high potential return type of energy play, Ecopetrol is one of your best choices.

Vaalco Energy (EGY)

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Vaalco Energy (NYSE:EGY) is an oil name that I’ve previously cited as one of the top dividend-paying energy stocks. I remain bullish on Vaalco, which engages in energy exploration and production mainly in emerging markets, and not just because of oil price trends.

Whether because of its small size, or that it is exposed to riskier oil-producing countries, Vaalco sports a low valuation. You can buy EGY stock today for less than 5 times earnings. However, the company has been steadily profitable, and a recent merger has helped to diversify political risk.

Based on its current quarterly dividend, EGY remains a high-yielder, with a forward annualized yield of around 5.4%.

As Vaalco wrings out cost savings from its aforementioned merger, the resultant jump in earnings could draw more attention to this under-the-radar energy stock, helping it to finally receive a much-deserved market re-rating.

Sitio Royalties (STR)

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Sitio Royalties (NYSE:STR) owns a portfolio of mineral and royalty interests. These interests are located in the Permian, Eagle Ford, and other oil-rich basins.

Despite booming crude oil prices, STR stock is yet another name that hasn’t joined in on the fun. Shares have traded sideways in recent months.

Earlier this month, disappointing quarterly results placed pressure on shares. Still, rather than being held down for good reason, my view is that Sitio is one of the oversold energy stocks.

Even with the earnings miss (due to one-time charges), the long-term prospects for this financially-savvy energy company remain strong. At least, based upon the fact Sitio continues to pursue and close on accretive acquisitions.

Coupled with oil prices staying elevated, this may enable STR to re-raise its dividend back to 2022 levels (72 cents per quarter, which would give the stock a double-digit yield at current prices).

Vital Energy (VTLE)

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Vital Energy (NYSE:VTLE) is a more obscure E&P stock. The Tulsa, Oklahoma-based energy company is more natural gas-focused than oil-focused.

Again, like with Devon Energy, this has prevented the sort of rally that more oil-focused energy stock has experienced lately.

While up nearly 20% year-to-date, VTLE stock is down by more than 20% over the past twelve months. However, it may today still be in oversold territory. Even after its recent run-up, Vital trades for only 3.2 times forward earnings. Earnings per share are expected to grow in both 2024 and 2025.

If you are worried that Vital Energy is a possible value trap, consider that investor Michael Burry recently added it to his portfolio, as InvestorPlace’s Shrey Dua reported Aug. 15.

While I wouldn’t buy it just because Burry has bought it, this factor does help to bolster its deep value bona fides.

On the date of publication, Thomas Niel did not hold (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.


Article printed from InvestorPlace Media, https://investorplace.com/2023/08/7-very-oversold-energy-stocks-to-buy-right-now/.

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