The oil sector is witnessing significant fluctuations, creating opportunities for undervalued oil stocks. With Brent crude trading at around $77 a barrel and West Texas Intermediate at $73, market conditions are ripe for strategic investments. Companies such as Shell (NYSE:SHEL) are focusing on shareholder value, reducing costs, and maintaining strong dividends, which make them an obvious choice. However, there are better undervalued oil stocks for investors to consider.
On the supply side, non-OPEC+ production is anticipated to lead the growth, with an increase of about 1.4 million b/d, while OPEC+ production is expected to rise more modestly by approximately 320,000 b/d as voluntary output cuts are gradually eased. The overall oil supply is projected to grow by around 690,000 b/d in 2024.
Oil prices are likely to remain relatively stable, with Brent crude expected to average around $84 per barrel. This stability is supported by balanced global supply and demand dynamics, though prices may fluctuate based on geopolitical developments and changes in production policies.
This all sets up for a strong outlook for these undervalued oil stocks to buy, which investors should pay attention to.
Devon Energy (DVN)
Devon Energy (NYSE:DVN) is a leading oil and gas producer with a significant presence in the Delaware Basin.
DVN stock appears to be undervalued at its current price of $47.73. The average price target from 15 analysts covering the stock is $60.60, which represents a potential upside of 26.96% from the current level. The consensus rating among analysts is a buy indicating that they believe the stock is likely to outperform the market over the next twelve months.
Looking at Devon Energy’s financial forecasts, revenue is expected to grow modestly by 0.86% this year to $15.39 billion and by another 4.59% next year to $16.10 billion. While earnings per share is projected to decline by 7.82% to $5.38 in 2024, it is expected to rebound and grow by 7.21% to $5.77 in 2025. The company’s forward PE ratio of 8.69 is relatively low compared to the broader market, suggesting that the stock may be undervalued given its growth prospects.
Marathon Oil (MRO)
Marathon Oil (NYSE:MRO) is an independent exploration and production company focusing on unconventional resources in the United States.
Marathon Oil generated $271 million of free cash flow and $239 million of adjusted free cash flow during last quarter. The company returned $349 million, or 41% of its adjusted cash flow from operations, to shareholders through share repurchases and its base dividend.
The reason I think MRO is undervalued however is because Marathon Oil reiterated its full-year production and capital spending guidance, indicating that it remains on track to deliver a strong 2024 program that benchmarks at the top of its peer group in terms of free cash flow, capital efficiency, and shareholder returns.
Marathon Oil is making progress on its E.G. gas development, having sanctioned two high-confidence, low-execution risk infill wells that are expected to largely mitigate base declines at other fields for two years.
Occidental Petroleum (OXY)
Occidental Petroleum (NYSE:OXY) is a multinational energy company with operations in the United States, the Middle East, and Latin America.
Despite a decline in earnings and revenue compared to the previous year, Occidental Petroleum reported Q1 2024 results that were largely in line with or better than analysts’ expectations. The company generated $2 billion in operating cash flow during the quarter.
Then there’s the elephant in the room. Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), led by renowned investor Warren Buffett, holds a 28.2% stake in Occidental Petroleum and has been consistently increasing its position in the company. Buffett’s confidence in the company and his continued investment suggest that he sees long-term value in OXY stock.
The fact that Buffett has been targeting shares in the $57-$61.50 price range, while the stock is currently trading around $64, indicates that he believes the stock is worth more than its current market price.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
