If we look at energy stocks with focus on the oil & gas sector, the last 12 months have been disappointing in terms of returns. Macroeconomic headwinds have ensured that energy prices remain relatively subdued. However, that’s likely to change in the next few quarters. Now is a good time to consider fresh exposure to energy stocks.

If we look at oil & gas exploration companies, some quality bets like Chevron Corporation (NYSE:CVX) and Occidental Petroleum (NYSE:OXY) stand out. However, these are blue-chip stocks and have a relatively low-beta. In a bullish scenario for oil price, these stocks will deliver robust returns.

However, the returns can’t be compared to low-price energy stocks. Of course, strong fundamentals are a basic screener. I believe that with potential rate cuts in the coming quarters, these under-$10 energy stocks can double in quick time.

Let’s discuss the catalysts other than higher energy prices that will trigger a rally in these stocks.

Borr Drilling (BORR)

At a forward price-earnings ratio of 8.4, Borr Drilling (NYSE:BORR) is among the undervalued under-$10 energy stocks to buy. Besides trading at a valuation gap, BORR stock offers a dividend yield of 1.73%. And, I expect steady dividend growth.

As an overview, Borr Drilling is a provider of offshore drilling services to oil & gas companies. The company has a fleet of 24 modern jack-up rigs that includes two rigs under construction. As of December 2023, the rigs had a contracted backlog of $1.75 billion. This provides clear revenue and cash flow visibility.

Last year, Borr reported adjusted EBITDA of $351 million with an EBITDA margin of 43%. For the current year, the company has guided for adjusted EBITDA of $525 million (mid-range). Further, the adjusted EBITDA margin is likely at 51%. Therefore, with robust EBITDA growth and margin expansion, it’s likely that BORR stock will trend higher.

I must add here that if oil trends higher, the order intake is likely to accelerate. This will position Borr for growth in 2025 and beyond. Considering these positives, BORR stock is poised for a big rally.

Ring Energy (REI)

Ring Energy (NYSE:REI) stock is another massively undervalued name to buy for multibagger returns. While business developments have remained positive, REI stock has remained sideways in the last 12 months. This seems like a good buying opportunity before a breakout rally.

Starting with the valuations, Ring Energy reported 2023 proved reserves of 129.8mmboe. The reserves have a PV10 of $1.65 billion. With Ring Energy’s market valuation at $350 million, the extent of undervaluation is clear.

For Q1 of 2024, the company reported sales of 13,394boepd. Production exceeded the high-end of REI’s guidance by 5%. Further, adjusted EBITDA and operating cash flow for the quarter was $62 million and $45.2 million, respectively. Also, Ring Energy has been reporting positive adjusted free cash flow on a sustained basis. Therefore, financial metrics have been positive which is likely to support REI stock upside.

Importantly, between 2018 and 2023, Ring Energy has grown production at a CAGR of 26%. This has been supported by organic growth and acquisitions. With a strong track record and high financial flexibility, it’s likely that healthy growth will sustain.

Nordic American Tankers (NAT)

Nordic American Tankers (NYSE:NAT) stock has remained sideways for year-to-date (YTD). I expect a breakout rally after consolidation considering the point that NAT stock trades at a forward P/E of 7.4. Further, the stock offers a dividend yield of 11.11%.

Nordic American Tankers is an oil tanker company with a current fleet of 19 Suezmax tankers. The company has benefited from robust time charter equivalent rates that has translated into healthy EBITDA and cash flows.

For Q4 of 2023, Nordic American Tankers reported average time charter equivalent rate of $39,170 per ship per day. For the same period, the daily operating cost was $9,000 per ship. Clearly, robust TCE rates have supported cash flow upside and dividend growth.

Notably, the current order book for Suezmax tankers is 11% of the current fleet. Historically, the order book has been around 20% of the fleet. A relatively low order book is likely to ensure that TCR rates remain robust.

Additionally, Nordic American Tankers has a strong balance sheet. As of December 2023, the debt per ship was $11.6 million. This provides NAT with high financial flexibility for potential fleet expansion.

On the date of publication, Faisal Humayun 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.