The 7 Most Undervalued Energy Stocks to Buy Now: August 2023
While energy stocks have suffered amid the Federal Reserve’s efforts to contain inflation, the segment has witnessed a resurgence. According to a CNN report earlier this month, oil prices have jumped double-digit percentage points, helping to carry the broader sector northward.
Some of the upswing could center on a recognition of core fundamentals. At the beginning of this year, analysts discussed the topic of energy stocks to buy now as a contrarian argument. Despite a lack of global supply, the sector inexplicably tumbled. Now, the market may be regaining some semblance of rationality.
Another factor to consider is social normalization. For one thing, the revenge travel phenomenon continues to be robust this year, which supports the bullish case for undervalued energy stocks. Second, many companies are now cracking the whip hard regarding return-to-office directives. This should translate to increased hydrocarbon consumption, which then bodes well for cheap energy stocks.
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Of course, investors will want to be vigilant given the unique circumstances of the post-pandemic ecosystem. Still, the below energy stocks to buy in August present an enticing proposition.
Marathon Petroleum (MPC)
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A midstream and upstream specialist, Marathon Petroleum (NYSE:MPC) focuses on petroleum refining, marketing, and transportation. Just from a technical standpoint, MPC easily ranks as one of the energy stocks to buy now. In the trailing five sessions, MPC gained almost 8% of its equity value. And in the past 30 (calendar) days, it skyrocketed over 26%.
Nevertheless, here’s the shocking part: MPC also makes a case for ranking among undervalued energy stocks. According to investment data aggregator Gurufocus, Marathon posted a three-year revenue growth rate (per-share basis) of 27.1%, above 80.33% of the competition. Nevertheless, MPC trades at a trailing revenue multiple of only 0.44. In contrast, the sector median stat pings at 1.03x.
Finally, Wall Street analysts peg MPC as a consensus strong buy. Understandably, though, the average price target lands at $151.11, implying less than 1% upside potential. However, the high-side target comes in at $164, implying almost 10% growth. That might be a worthwhile bet considering that MPC’s one of the cheap energy stocks.
HF Sinclair (DINO)
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A diversified energy firm, HF Sinclair (NYSE:DINO) focuses on the downstream segment of the energy value chain. Specifically, the company manufactures and sells products such as gasoline, diesel fuel, jet fuel, and specialty lubricant products, among other categories. Like other energy stocks to buy now, DINO has been absolutely rocking. Just in the trailing one-month period, DINO gained over 28% of market value.
So far this year, the robust gains have translated to a return of almost 20%. Nevertheless, DINO ranks among the undervalued energy stocks. Presently, the company runs a three-year revenue growth rate of 21.8%, above 74% of sector rivals. At the same time, DINO trades at a trailing sales multiple of 0.34. This compares favorably to the sector median of 1.03x.
Lastly, covering analysts peg DINO as a consensus strong buy. Given the robust performance recently, the average price target – which lands at $60.25 – only represents under 2% upside potential. However, the high-side target stands at $70, which implies 18% growth.
PBF Energy (PBF)
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Another upstream specialist, PBF Energy (NYSE:PBF) is a petroleum refiner and supplier of unbranded transportation fuels, heating oils, lubricants, and other petroleum-related products. As with other top energy stocks to buy in August, PBF has been on a roll. Since the beginning of this year, shares gained nearly 33% of equity value. And the hits just keep on coming.
In the trailing five years, PBF scored a return of over 9%. In the past month, shares stormed to a nearly 25% gain. At this point, you wouldn’t think that PBF ranks among the cheap energy stocks. However, you’d be wrong. Operationally, you’re looking at a three-year revenue growth rate of 22.4%, above nearly 75% of its peers. Nevertheless, PBF trades at 0.15x trailing sales.
As a bonus, the market prices PBF with a forward earnings multiple of 5.47, which is also significantly undervalued. To close, analysts peg PBF as a consensus moderate buy with a $51.63 average price target. That only implies about 4% upside. However, the high-side target calls for $62, implying over 24% growth.
Valero Energy (VLO)
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Yet another entry in the downstream component of the sector energy chain, Valero Energy (NYSE:VLO) mostly concentrates on manufacturing and marketing transportation fuels. It’s also involved in the power business. Similar to other resurgent energy stocks, VLO has benefited from a robust sentiment shift. For the year, Valero gained almost 16% of its equity value.
Better yet, momentum continues to run hot. In the trailing five sessions, VLO swung up over 8%. And in the trailing month, shares returned almost 23%. Operationally, Valero impresses with a three-year revenue growth rate of 19.4% and an EBITDA growth rate during the same period of 45.7%. Nevertheless, VLO trades at 0.33x trailing sales.
Also, it’s worth pointing out that the market prices VLO at a 6.68x forward multiple. In contrast, the sector median stat clocks in at 9.14x. Turning to Wall Street, analysts peg VLO as a moderate buy. On average, the price target stands at $148.91, implying over 7% growth. The high-side target calls for $171, translating to 23% upside.
Southwestern Energy (SWN)
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A natural gas exploration and production company, Southwestern Energy (NYSE:SWN) has benefited from the sentiment pivot in energy stocks. With the underlying commodity at particular risk due to the current geopolitical environment, the upside isn’t that surprising. Still, it’s an impressive performance. So far this year, SWN gained almost 18% of its equity value.
Admittedly, in the week ended Aug. 11, SWN tripped up about 1%. However, in the trailing month, shares swung to a 10% gain. Despite the broadly positive performance, SWN ranks among the cheap energy stocks to consider. For example, the company posts a three-year revenue growth rate of 33.8%, outflanking 86% of companies in the oil and gas industry.
Nevertheless, SWN trades at 0.64x trailing revenue, which sits favorably beneath 65.39% of its peers. Also, it trades at 2.16x operating cash flow, beneath the sector median of 4.66x. Currently, analysts peg SWN as a consensus moderate buy. Further, it’s one of the energy stocks to buy in August because of its $7.78 average price target, which implies 20% upside.
GeoPark (GPRK)
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For the next two energy stocks, I’m going to go on a contrarian route, first with GeoPark (NYSE:GPRK). According to its website, GeoPark is a leading independent exploration and production company based in Latin America. Unlike the other names on this list, GPRK, unfortunately, has not yet benefited from the sector resurgence. Since the Jan. opener, shares have tumbled over 29%.
Obviously, that’s not a great confidence booster. What could be said, though, is that sentiment may finally be turning in the northbound direction. In the five sessions that ended Aug. 11, shares gained just under 5%. Granted, there are no guarantees here. However, the underlying financials also entice onlookers.
Specifically, GeoPark’s three-year revenue growth rate clocks in at 20.4%. However, shares trade at only 0.69x trailing sales. As well, the market prices GPRK at 3.5x forward earnings, which is practically subterranean. Presently, no one covers GPRK. However, from the analysts that did cover it several months ago, it may have the potential for robust double-digit gains.
Murphy USA (MUSA)
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For a truly contrarian look among energy stocks to buy in August, check out Murphy USA (NYSE:MUSA). A downstream specialist, Murphy operates a chain of retail gasoline stations primarily located in proximity to Walmart (NYSE:WMT) stores. As with its peers, MUSA has been on the move. Since the beginning of this year, MUSA gained almost 16%. In the trailing five sessions, it’s up about 5%.
Here’s where circumstances get squirrely. Right now, none of the analysts that presently cover MUSA rates it as a buy. Instead, we’re looking at three holds and one sell. Also, the average price target of $301.25 implies almost 5% downside risk.
Although the naysayers could be right, I’m going to disagree. First, MUSA represents one of the undervalued energy stocks. While printing a three-year revenue growth rate of 30.5%, it maintains a sales multiple of 0.3x. Second, Murphy’s location in proximity to Walmart stores is a great business model based on current circumstances. Basically, people will be looking for discounts on their gas and Murphy can soak up that demand volume. So, in my opinion, it’s a buy.
On the date of publication, Josh Enomoto did not have (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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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