The Cheapest Energy Stocks on the Market

With every passing month, we read another report about our nation's fast-track path to energy independence. Our domestic production of oil and gas is growing so rapidly, that we may just be a half-decade away from ending our long addiction to imported energy. And this would be great news for our nation's trade deficit, employment picture and national security.

Despite the ever-brightening energy picture, it's still quite easy to find value-priced stocks in this sector. Dozens of stocks trade at reasonable levels in relation to their cash flow, asset base and long-term growth prospects. I ran a series of screens to help bring a sharper focus to these industry value plays.

By triangulating the results of several screens, it's possible to see the deepest values in this steadily-growing sector.

Single-digit multiples abound

While stocks in many other industries are often assessed by their price-to-earnings (P/E) multiples, this metric isn't quite as useful for energy-exploration firms. They have such intense capital requirements and high levels of depreciation and amortization to write down their capital expenses, that net profits can be misleading. Instead, cash flow is the more salient metric.

I looked at all of the oil and gas drillers that are either headquartered in the United States, or trade on U.S. stock exchanges through American depositary receipts, with a market value of at least $500 million. I found 60 that trade for less than six times trailing cash flow.

To narrow down the list, I only focused on companies that trade for less than 1.25 times book value. This means these companies have solid underlying support, trading near or below the value of their base of assets. The list was narrowed down to 16 stocks, as you can see below.

The Cheapest Energy Stocks I've Found 

A pair of energy producers that have exposure to Argentina (YPF S.A. (NYSE: YPF) and Petrobras Argentina (NYSE: PZE)) have been eliminated from this group because these companies now face a risky operating environment thanks to recent government policy changes. Still, it's noteworthy that some of the energy producers (in terms of price) hail from countries such as Russia (Lukoil), Italy (Eni), France (TOTAL) and the U.K. (BP). Sometimes, as Elliott Gue, chief strategist of StreetAuthority's High-Yield International newsletter, can attest, you need to venture abroad to find an industry's top bargains.  (more)


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