Rising consumption of oil and gas in the developing world makes the energy sector a compelling long-term opportunity for investors. But for those who are also looking for yield, the U.S.-based integrated energy stocks offer limited options. According to CNBC, the energy stocks in the S&P 500 Index yield just 1%, well below the 2.1% yield of the broader market. The largest U.S. energy stock, Exxon Mobil (NYSE:XOM), yields 2.3% — in line with the market, but not particularly impressive.
The solution for yield-hungry investors can be found in foreign-company stocks. A number of overseas energy companies offer not just attractive yields, but compelling valuations. Four stocks stand out: Seadrill (NYSE:SDRL), YPF (NYSE:YPF), Total (NYSE:TOT), and Statoil (NYSE:STO).
Seadrill (Norway)
Yield: 8.5%
2012 P/E: 10.8
Perhaps the least well-known of the stocks mentioned here, Seadrill is a deep-water drilling contractor with a history of dividend increases and projected earnings growth of about 12% for 2012. Drillers have come under pressure in recent years due to the Gulf oil spill, the subsequent U.S. drilling moratorium, and concerns about rising global rig count, but political factors are swinging back to the positive side amid rising energy costs for consumers. Seadrill is well-positioned for an industry upturn by virtue of its strong market position (No. 2 in the world) and the relatively young average age of its rigs. With an 8.5% yield, investors are certainly being paid to wait.
YPF (Argentina)
Yield: 7.6%
2012 P/E: 10.0
YPF is a diversified energy stock with operations that include not just exploration and production, but also pipelines, refineries, and service stations throughout Latin America. The company has large proven reserves and has made two substantial finds within the past six months, the more recent being a deposit in Patagonia with 150 million barrels of oil. Earnings estimates have been rising nicely and analysts’ median target price is $55, about $9 above current levels. With rising profit margins, double-digit growth, and a stock price nearly $10 off of its 2011 high, YPF is a very attractive option among global integrated oil companies.
Total (France)
Yield: 4.5%
2012 P/E: 6.9
Another global giant, Total features a history of rising dividends and 2011 earnings estimates that have risen 11% in the past 90 days. Notably, Total has a lower P/E, higher yield, and a substantially lower Enterprise Value/EBITDA ratio (3.3) than the U.S.-based integrated oil companies Exxon Mobil, Chevron (NYSE:CVX), and ConocoPhillips and (NYSE:COP) – an enticing value for those willing to look for opportunities outside our borders.
Statoil (Norway)
Yield: 3.6%
2012 P/E: 8.0
Statoil may be a more controversial selection, since it is viewed as being vulnerable to the long-term decline in Norway’s oil production. It is certainly priced accordingly, with an Enterprise Value/EBITDA ratio of just 2.6 and a P/E scraping the bottom end of its historical range. Still, in April the company announced the discovery of 500 million barrels worth of oil in the Barents Sea, and it continues to explore actively in the area. Norway is pushing to boost oil production following 10 years of decline, a positive for Statoil since two-thirds of the company is owned by the Norwegian government. Statoil reported first-quarter earnings 44% above year-ago levels, and it is on track to report growth of over 30% for the full year.
These are not the only overseas energy stocks with good yields and low valuations. Other names investors may want to investigate are Royal Dutch Shell (NYSE:RDSA), yielding 4.7% with a P/E of 9.4, ENI (NYSE:E) with a 3.5% yield and 13 P/E, and BP (NYSE:BP), yielding 3.8% with a 6.5 P/E.
The final point: most of these stocks offer the benefit of being well off of their highs of earlier this year. At the same time, however, all have rallied 5-10% in the past week amid the recovery in the broader markets. Investors should therefore consider waiting for the recent rally to cool before initiating any positions.
