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Cheap Energy Stocks: Values or Traps?

  • (0:20) - Where Should You Be Looking To Find Value In Energy Stocks?

  • (5:15) - Tracey’s Top Stock Picks For Your Portfolio

  • (22:30) - Episode Roundup: FANG, EOG, SLB, XOM, CVX, TTE

  • Podcast@Zacks.com

 

Welcome to Episode #372 of the Value Investor Podcast.

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

It’s time to look at the energy stocks again. Periodically, over the last 3 years, Tracey has featured the energy stocks, especially the oil producers, as they have been hated by the stock market and appeared cheap.

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Currently, many trade with P/Es under 15 and some are even cheaper, with P/Es in the single digits. Warren Buffett and Berkshire Hathaway keep diving in too. Berkshire continues to add to its Occidental Petroleum position this year.

Is Buffett getting it right?

Are energy stocks true values?

What is the Difference Between a Value Stock and a Trap?

Remember, a value stock is defined not by the price of the stock but by its valuation. They usually have low P/E and P/S ratios, among other criteria. But lots of stocks can qualify by that metric.

A cheap stock becomes a trap when the earnings are expected to decline. Value investors want cheap stocks where earnings are still expected to grow. In fact, all investors should want stocks with rising earnings.

Are earnings expected to rise, or fall, in the energy complex in 2024?

5 Cheap Energy Stocks: Values or Traps?

1.       Diamondback Energy, Inc. (FANG)

Diamondback Energy is a large cap US oil and natural gas producer which drills in the Permian Basin. Diamondback Energy is cheap with a forward P/E of just 10.

Earnings are expected to rise 6.2% in 2024. And analysts have gotten bullish in the last week with 2 estimates revised higher in that time. The Zacks Consensus is now looking for $19.13 versus $18.01 last year.

Is Diamondback Energy a value or a trap?

2.       EOG Resources, Inc. (EOG)

EOG Resources is a large cap energy exploration and production company with US domestic drilling, including the Permian Basin, as well as in Trinidad & Tobago. EOG Resources is also cheap with a forward P/E of 10.

EOG Resources is shareholder friendly, with a dividend yielding 3% and $3.3 billion left on its share authorization as of its first quarter earnings report.

Is EOG Resources a value or a trap?

3.       SLB (SLB)

SLB is a global technology company that provides innovative services to the energy industry. Shares of SLB have dropped 15% over the last 3 months. It is cheap with a forward P/E of just 12.8.

SLB also pays a dividend, currently yielding 2.5%.

2024 sales are expected to rise 17.9%. The shares appear to be on sale.

Is SLB a value stock or a trap?

4.       Exxon Mobil Corp. (XOM)

Exxon Mobil is one of the largest oil companies in the United States. It explores and produces energy globally, including in Guyana. Exxon Mobil hit new highs earlier this year but has since pulled back.

It’s cheap, with a forward P/E of 11.9. Exxon Mobil is also shareholder friendly with a dividend yielding 3.4%.

Is Exxon Mobil a value or a trap?

5.       Chevron Corp. (CVX)

Chevron is also one of the largest oil companies in the United States. Like Exxon, it also has global operations.

Shares of Chevron have fallen 7.8% in the last month. It’s cheap, with a forward P/E of just 11.5. Chevron also pays out one of the highest yields in the Dow, at 4.2%.

Sales are expected to rise 2.7% in 2024.

Is Chevron a value or trap?

What Else Should You Know About Energy Stocks?   

Tune into this week’s podcast to find out.

[In full disclosure, Tracey owns shares of XOM and CVX in her personal portfolio. Zacks Value Investor owns XOM.]

 

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Chevron Corporation (CVX) : Free Stock Analysis Report

Exxon Mobil Corporation (XOM) : Free Stock Analysis Report

Schlumberger Limited (SLB) : Free Stock Analysis Report

EOG Resources, Inc. (EOG) : Free Stock Analysis Report

Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report

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Zacks Investment Research