3 Energy Stocks for Investors Using a Value-Focused Approach
Value investing has long been regarded as a successful investment strategy, and for a good reason. It focuses on identifying stocks whose prices do not reflect their true intrinsic or fundamental value.
In the cyclical and uncertain Oil/Energy sector, value investing becomes even more prudent for investors seeking stability and potential returns. Among the notable stocks in this space that fit the bill are Civitas Resources CIVI, NuStar Energy NS and Murphy USA MUSA.
The Benefits of Value Investing
Historical data consistently demonstrate that value stocks tend to outperform growth stocks and exhibit relatively lower volatility. These companies are often well-established, and their stock prices may have suffered setbacks due to temporary earnings declines or industry-specific challenges. Value stocks typically exhibit attractive metrics, such as high dividend yields, low price-to-book ratios, low price-to-earnings ratios, or low price-to-sales ratios.
Opportunity in the Energy Market
For risk-averse investors looking to enter the energy market, value investing provides an avenue to acquire stocks that have been overlooked by many and are trading at discounted valuations. In other words, these stocks trade at attractive multiples compared to their true worth. Despite occasional obstacles, the outlook for energy demand remains favorable, as reflected by OPEC’s recent upbeat forecast. Therefore, making investments in undervalued stocks from the sector seems a wise decision.
The Zacks Advantage
Analyzing each parameter and comparing it to the peer group to determine the attractiveness of a stock from a value perspective can be a daunting task. Fortunately, Zacks has developed a comprehensive Style Score system that identifies value stocks with significant potential in the near term. Combining this approach with the Zacks Rank, which reflects analysts' optimism, enhances the investment strategy.
According to our research, stocks with Value Style Scores of A or B in conjunction with a Zacks Rank #1 (Strong Buy) or 2 (Buy) present excellent investment opportunities. By leveraging this approach, investors can potentially identify undervalued stocks that possess strong growth prospects and enjoy positive sentiment from analysts.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Our Choices
We have narrowed our search to three energy firms that carry a Value Score of A in addition to a Zacks Rank #1 or 2.
Civitas Resources: Formerly known as Bonanza Creek Energy, Civitas Resources was formed out of the merger between Bonanza Creek Energy and Extraction Oil & Gas. CIVI’s high-quality asset base, disciplined capital allocation and fortress balance sheet allow it to maintain an attractive long-term cash flow profile. Of late, the company has entered the high-margin Permian Basin, gaining access to the region’s premium, low-breakeven inventory.
The current forward price-to-sales ratio works out to be 1.6X, a few notches below the five-year median and beneath the S&P 500 average of 3.9X. And for those seeking an income stream, CIVI has that covered with shares currently yielding 2.9% annually. The #1 Ranked company has also posted some decent results as of late, exceeding earnings expectations by an average of 4.5% across its last four periods.
NuStar Energy: NuStar is a master limited partnership that engages in the transportation and storage of crude oil as well as refined products in the United States, the Netherlands Antilles, Canada, Mexico and the U.K. The firm's diversified asset base, a strong pipeline of organic growth projects and contribution from acquisitions bode well and have supported its distributable cash flows.
Trading around $17 a unit and 16.9X forward earnings, the NS stock trades well below its five-year high of 26.4X and at a 25% discount to the S&P 500 average. The partnership, with a Zacks Rank of 1, also offers a dividend yield of 9.3%. It has exceeded the Zacks Consensus EPS Estimate by an average of around 5.2% across its last four quarters. In its latest release, NuStar penciled in a 50% EPS surprise and reported revenue 5.2% ahead of expectations.
Murphy USA: This is a leading independent retailer of motor fuel and convenience merchandise in the United States. The proximity of Murphy USA’s fuel stations to Walmart supercenters helps the company to leverage the strong and consistent traffic that these stores attract. MUSA’s acquisition of QuickChek Corporation — a family-owned food and beverage chain located — is expected to help improve its offerings.
Trading at around $310 a share, Zacks #2 Ranked Murphy USA stock trades at just 15.2X forward earnings which is below its five-year median of 15.7X and the S&P 500’s average of 21.2X. MUSA’s earnings estimates have continued to rise as well. The Zacks Consensus Estimate for its 2023 earnings has been revised 6.8% upward over the past 60 days to projections of $20.36 per share compared to $19.06 a share two months ago. Plus, next year’s earnings estimates are slightly up as well.
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NuStar Energy L.P. (NS) : Free Stock Analysis Report
Murphy USA Inc. (MUSA) : Free Stock Analysis Report
Civitas Resources, Inc. (CIVI) : Free Stock Analysis Report
