While many undervalued energy stocks to buy struggled with sustaining robust momentum this year, a recent catalyst might change everything. As I stated for InvestorPlace, at the start of this week, “the alliance between the Organization of the Petroleum Exporting Countries (OPEC) and non-member oil-producing nations — known as OPEC+ — imposed shock production cuts on Sunday.”
In total, the cuts amount to 3.66 million barrels per day (bpd) or 3.7% of global demand. Fundamentally, the move demonstrated to the White House that U.S. government agencies alone won’t dictate terms for the U.S. dollar or the world’s reserve currency. Rather, other nations can coordinate their behaviors to move the needle favorably in their direction. This shocker may be what undervalued energy stocks to buy need to awaken from their slumber.
Each of the market ideas below are undervalued relative to trailing-12-month earnings. As well, the associated enterprises all feature a minimum Altman Z-Score of 4; that way, we’re limiting the likelihood of truly garbage ideas getting in. With that, here are the most undervalued energy stocks to buy.
Marathon Petroleum (MPC)
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Headquartered in Findlay, Ohio, Marathon Petroleum (NYSE:MPC) is a petroleum refining, marketing, and transportation company. Currently, Marathon Petroleum commands a market capitalization of $57.6 billion. Since the start of the new year, MPC gained over 13% of its equity value. Moreover, in the past 365 days, it shot up over 48%, making it one of the consistently strong-performing yet undervalued energy stocks to buy.
Right now, the market prices shares at a trailing multiple of 4.4 times. As a discount to earnings, Marathon ranks better than 70.47% of companies in the oil and gas industry. Also, MPC trades at 0.39 times sales. In contrast, the sector median value is 0.96 times.
Notably, Marathon also features a solid balance sheet with an Altman Z-Score of 4.03, reflecting low bankruptcy risk. Operationally, its three-year revenue growth rate pings at 27.1%, outpacing 81.82% of sector players. Finally, Wall Street analysts peg MPC as a consensus strong buy. Their average price target comes out to $149, implying over 18% upside potential.
Phillips 66 (PSX)
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A downstream energy specialist, Phillips 66 (NYSE:PSX) focuses primarily on refining, transporting, and marketing hydrocarbon resources. As social normalization trends accelerate in the post-pandemic environment, PSX should gain relevance. Since the start of the year, shares dipped nearly 3%. However, in the trailing year, they’re up over 14%.
A little patience may serve investors well as Phillips 66 ranks among the undervalued energy stocks to buy. Specifically, the market prices PSX at a trailing multiple of 4.28. As a discount to earnings, the company ranks better than 72.11% of the competition. Also, PSX trades at 0.29 times sales. This stat ranks favorably lower than 80.89% of sector peers.
Operationally, the enterprise features a three-year revenue growth rate of 14.9%. Also, its EBITDA growth rate during the same period is 39.3%. Lastly, covering analysts peg PSX as a consensus moderate buy. Their average price target stands at $129, implying over 31% upside potential.
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Headquartered in Calgary, Alberta, Canadian hydrocarbon specialist Enerplus (NYSE:ERF) is one of its nation’s largest independent oil and gas producers. The company holds hydrocarbon property interests in both the U.S. and western Canada. As well, it features properties in the provinces of Alberta, British Columbia, and Saskatchewan. Since the Jan. opener, ERF slipped almost 7%.
While it got off to a rough start in 2023, it’s also one of the undervalued energy stocks to buy. Presently, the market prices ERF at a forward multiple of 5.87. As a discount to projected earnings, Enerplus ranks better than 68.83% of the field. Also, ERF trades at 5.18 times free cash flow (FCF). In contrast, the sector median is 7.53 times. Notably, Enerplus enjoys a relatively stable balance sheet with an Altman Z-Score of 4.33. Operationally, the company’s three-year revenue growth rate pings at 34.2%, an impressive figure.
In closing, analysts peg ERF as a consensus moderate buy. Their average price target comes out to $20.77, implying over 37% upside potential.
Epsilon Energy (EPSN)
Headquartered in Houston, Texas, Epsilon Energy (NASDAQ:EPSN) is a North American on-shore focused independent oil and natural gas company engaged in the acquisition, development, gathering, and production of oil and gas reserves. It’s a higher-risk name among undervalued energy stocks to buy, with a market cap of only $121.5 million. Since the Jan. opener, EPSN slipped over 17%.
Still, if you can overlook some of the challenges associated with Epsilon, it could be an intriguing target for speculation. Notably, the market prices EPSN at a trailing multiple of 3.56. As a discount to earnings, Epsilon ranks better than 79.23% of sector peers. Also, EPSN trades at 4.12 times FCF, coming in favorably below nearly 74% of competitors.
In addition, Epsilon benefits from a cash-rich balance sheet. As well, its Altman Z-Score pings at 5.65, reflecting low bankruptcy risk. Operationally, its three-year revenue growth rate of 44.8% screams past nearly 92% of hydrocarbon specialists. Currently, analysts do not cover EPSN stock.
HF Sinclair (DINO)
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A diversified energy firm, HF Sinclair (NYSE:DINO) manufactures and sells products such as gasoline, diesel fuel, jet fuel, renewable diesel, specialty lubricant products, specialty chemicals, and specialty and modified asphalt, among others. Though it features a massive footprint, that hasn’t helped its market performance. Since the Jan. opener, DINO fell almost 10%.
Nevertheless, the company brings an enticing narrative to the table for those seeking undervalued energy stocks to buy. For one thing, it’s undervalued relative to trailing earnings. However, the market also prices DINO at a forward multiple of 5.21. As a discount to projected earnings, HF Sinclar ranks better than 65.74% of companies listed in the oil and gas sector.
Operationally, the enterprise runs a three-year revenue growth rate of 21.8%, outpacing 76.54% of its rivals. Also, its EBITDA growth rate during the same period is 29.3%, another impressive figure. Turning to Wall Street, analysts peg DINO as a consensus moderate buy. Their average price target stands at $61.64, implying nearly 38% upside potential.
PBF Energy (PBF)
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A petroleum refiner and supplier of unbranded transportation fuels and other hydrocarbon products, PBF Energy (NYSE:PBF) may be an unsung hero among undervalued energy stocks to buy. Fortunately, astute investors recognize the opportunity inherent in PBF shares. Since the Jan. opener, they moved up over 6%. In the past 365 days, they gained nearly 57%, a blistering performance.
Despite the gains, there may be more room for growth. Conspicuously, PBF’s price-earnings ratio sits at a ridiculously low 1.76 times. Further, the market prices shares at a forward multiple of 5.17. As a discount to projected earnings, PBF Energy ranks better than 72.22% of companies in the oil and gas space. Also noteworthy, PBF trades at 0.12 times sales, favorably below 91.76% of the competition.
The company benefits from decent stability in the balance sheet, with an Altman Z-Score of 5.11. Operationally, it posts a three-year revenue growth rate of 22.4%, above 77.44% of the industry. Looking to the Street, analysts peg PBF as a consensus moderate buy. Their average price target is $52.22, implying nearly 31% upside potential.
Arguably the most speculative name on this list of undervalued energy stocks to buy, Seadrill (NYSE:SDRL) is a deepwater drilling contractor for the petroleum industry. Interestingly, Seadrill operates semi-submersible platforms, jack-up rigs, and drillships. Since the beginning of the year, SDRL gained nearly 27% of its equity value. In the trailing one-year period, SDRL swung up almost 16%.
While it enjoyed a significant push higher, Seadrill’s significantly undervalued on paper. Currently, the market prices shares at a trailing multiple of 1.19. As a discount to earnings, the company ranks better than 96% of the field. To be fair, investors should be careful about extreme figures since SDRL might be a value trap.
That said, Seadrill features an Altman Z-Score of 6.09, reflecting better-than-average fiscal stability. Also, its debt-to-EBITDA ratio is 0.26 times, favorably lower than the sector median stat of 1.65 times. Finally, SDRL lacks analyst coverage so you’ll be gambling on your own. Still, with cynically favorable fundamentals, Seadrill could be worth a look.
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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