The energy sector presents several opportunities for investors looking to buy undervalued energy stocks in July.

Companies in the oil and gas sector with strong cash flow and investments in low-carbon energy sources are quite appealing. Organizations in this sector striving to reduce their debts and have positive expectations regarding production are likely to deliver good results in the future, particularly if the prices of oil rise.

On the other hand, the demand for liquefied natural gas is expected to rise, so firms that transport LNG globally will also be attractive options. Shell (NYSE:SHEL) forecasts that demand for LNG will rise by over 50% by 2040. Companies with high contract coverage and good financial health are well-placed to take advantage of this situation.

Last but not least, the shift towards green energy is still rising, with more funds being pumped into green energy solutions. Companies specializing in this industry usually have low market capitalizations due to being newer companies and, therefore, can be considered attractive by value investors.

No matter what one’s fancy is for undervalued energy stocks this month, there are some opportunities for the taking for investors. Thus, these three undervalued energy stocks can be added to one’s portfolio.

Devon Energy (DVN)

Devon Energy (NYSE:DVN) is an independent energy company that focuses on oil and natural gas exploration, development and production.

Devon Energy has an elite-tier oil portfolio, with particular emphasis on the Delaware Basin, which makes up 60% of the company’s total oil assets. The Delaware Basin assets have low breakeven costs of $40 per barrel, below the North American average of $44 per barrel for West Texas Intermediate crude oil.

Devon’s oil production last quarter exceeded guidance by 4%, producing 664,000 oil-equivalent barrels per day.

Management increased its full-year production forecast to 655,000 to 675,000 barrels of oil equivalent per day (mboe/d) from the previous estimate of 645,000 to 670,000 mboe/d. This is expected to generate $75.2 million of incremental pre-tax profits for 2024. 

Given DVN’s trend of providing value back to shareholders through dividends and buybacks, I expect some incremental profits to be funneled back to investors, especially as DVN’s dividend payout ratio is already low at a healthy 39%.

ConocoPhillips (COP)

ConocoPhillips (NYSE:COP) is an international oil and gas company with a strong portfolio of oil and gas assets worldwide.

ConocoPhillips is a value stock at the current price of around $115 per share. The company also recorded good results in the first quarter with earnings of $2.6 billion and operating cash flow of $5.1 billion. Production increased 2% from a year ago.

Aside from these strong financial results, my thesis for the future hinges on COP’s planned acquisition of Marathon Oil (NYSE:MRO). The deal will synergize the entities’ assets, mainly in the most attractive U.S. shale basins such as Eagle Ford, Bakken, and Permian. Over the next five years, the deal is expected to generate $2.5 billion to $3.5 billion of earnings before interest, taxes, depreciation (or depletion), amortization, and exploration expense (EBITDAX).

The company is also increasing its share repurchase target from $5 billion to over $7 billion annually, with plans to buy back $20 billion of stock over the first three years post-closing. In addition, ConocoPhillips is hiking its dividend by 34% later this year.

Occidental Petroleum (OXY)

Occidental Petroleum (NYSE:OXY) is an international oil and gas exploration and production company.

Analyst recommendations are to buy this stock with an average target price of almost $73, implying a healthy 19% upside. I believe that OXY is currently undervalued with a forward price-to-earnings (P/E) ratio of 14.9x, which is lower than its trailing 12-month measure of 16x, indicating that earnings are predicted to rise substantially in the future.

It’s not just analysts who are bullish on OXY. My favorite investor, Warren Buffett, in conjunction with Berkshire Hathaway (NYSE:BRK-B, NYSE:BRK-A) has been actively building his position, increasing it to a 29% stake recently. Berkshire now owns $15.37 billion worth of OXY shares. 

Berkshire is not just a silent investor in Occidental by purchasing shares. It also signed a joint venture to engage in the extraction of lithium, which is useful in producing electric vehicle batteries. This partnership supports Occidental’s approach to focus on green energy and can create a significant new growth path for the company.

This gives OXY a diversified growth angle above other undervalued energy stocks that focus purely on gas or oil, which makes it a special pick.

Valero Energy (VLO)

Valero Energy (NYSE:VLO) is a best-in-class operator with extensive refining system options. It operates 15 highly complex petroleum refineries worldwide and has a throughput capacity of around 2 million barrels per day. 

The company, through a renewable diesel joint venture with Diamond Green Diesel, could experience additional margin advancement. Speaking of the segment, the EBITDA margins were up from 41 cents per gallon in Q4 2023 to 76 cents per gallon in Q1 2024. I foresee additional margin expansion as this partnership unlocks value for both entities.

On the valuation front, VLO trades at just 7x earnings, which is around 30% less than the sector median, signaling undervaluation on the earnings front.

Baker Hughes Company (BKR)

I believe Baker Hughes Company (NASDAQ:BKR) appears to be well placed for increased demand for natural gas and hydrogen fuel. The company reported strong growth in its gas tech business last quarter, and segment orders of that business are anticipated to rise to 50% of the next fiscal year.

I foresee that BKR’s earnings and revenues will be higher throughout the year. Natural gas prices dropped in the first half of 2024, primarily because of the mild winter, and then recovered in mid-June. American prices are 80% higher, and European ones are 25% higher compared to the prices of March. This rebound has been attributed to the rising need for electricity generation as well as anticipation of more volumes from the U.S. LNG export facilities in the next few months.

With LNG being a main segment of BKR, it could surprise investors with strong earnings and revenues next quarter, making it one of those undervalued energy stocks.

Halliburton Company (HAL)

Halliburton Company (NYSE:HAL) is one of those undervalued energy stocks that investors should have on their radar. This is because Halliburton is likely to reap big if former President Donald Trump wins another term on Election Day. Experts think that since Trump’s administration would reduce interest rates and the regulation of businesses, Halliburton, as a small-cap company, may benefit from this.

The reasoning is simple: Smaller-capitalized companies can get easier and cheaper access to credit when interest rates are lower. The requirements for loans are often less stringent, and the burden of long-term interest rates is also reduced, which may allow companies like HAL to rapidly expand their capital expenditures easily.

Another factor that is in HAL’s favor is that it is among the highest-rated undervalued energy stocks on the list, with eight strong buy ratings and an implied upside of 44% at the time of writing.

Phillips 66 (PSX)

Berkshire Hathaway’s Buffett once wrote, “Diversification is protection against ignorance.”. Modern financial wisdom shows this to be true, which is why I believe that Phillips 66 (NYSE:PSX) is a great investment option at the moment. Thus, being one of the largest and the most diversified independent refiners in the U.S, I envision a number of opportunities for the company.

Despite the fact that the refining business is rather unpredictable, Phillips 66 has shifted its focus to derive the lion’s share of its EBITDA from less sensitive segments such as midstream and chemicals. The company’s robust expected EBITDA from its DCP Midstream acquisition and a growing high-margin petrochemicals joint venture also offers sustainable cash flows.

The stock trades at just 10.2x trailing earnings and offers an appealing 3.5% dividend yield. When all of these factors are put together, I think there’s a strong case to be made that PSX is one of those undervalued energy stocks.

On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.