Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 3 stocks made the list for top value stocks in the Oil & Gas - Exploration and Production industry. Those looking for value stocks to add to their portfolio may want to use this list as a starting point for further investment research.

Latest Oil & Gas - Exploration and Production Stock News

Before choosing which top Oil & Gas - Exploration and Production stock to buy, be sure to conduct proper due diligence: analyze various financial metrics and look at historical data, public statements and news coverage.

The outlook for the oil and gas exploration and production sub-industry is mostly favorable for the foreseeable future. As a result of the COVID-19 pandemic, a major oil shock occurred in 2020. Since then, crude oil prices have begun to recover, currently priced at around $60 per barrel as a result of persistent supply cuts by the OPEC-Plus Consortium. While the demand perspective remains uncertain, from a supply perspective, both OPEC and non-OPEC participants have a conservative production outlook in 2021. The most significant unknown factor is the potential lifting of Iran sanctions by the Biden administration and its impact. According to the International Energy Agency (IEA), oil demand is expected to increase by about 5.4 mmb/d, to 96.4 mmb/d in 2021. While this appears to be a strong year-over-year increase, it is well in line with the 2019 demand of around 100 mmb/d, signifying only a 60% recovery from the pandemic. In May 2021, the EIA forecasted WTI crude oil prices as $59 dollars per barrel in 2021 and $57 per barrel in 2022. At these price points, exploration and production operations are expected to generate significant free cashflow.

Why Focus on Undervalued Oil & Gas - Exploration and Production Stocks?

Value investors seek to buy stocks at a discount to their intrinsic value. Long-term returns show that such strategies are advantageous. Value stocks, as a group, tend to outperform growth stocks over extended periods of time. Typically, value investors perform financial analysis of numerous metrics, don’t follow the herd and are long-term investors.

AAII’s A+ Investor Value Grade is derived from a stock’s Value Score. The Value Score is the percentile rank of the average of the percentile ranks of the price-to-sales ratio, price-earnings ratio, enterprise-value-to-EBITDA (EV/EBITDA) ratio, shareholder yield, price-to-book-value ratio and price-to-free-cash-flow ratio. The score is variable, meaning it can consider all six ratios or, should any of the six ratios not be valid, the remaining ratios that are valid. To be assigned a Value Score, stocks must have a valid (non-null) ratio and corresponding ranking for at least two of the six valuation ratios.

What Goes Into AAII’s Value Grade?

Stock evaluation requires access to huge amounts of data as well as the knowledge and time to sift through it all, make sense of financial ratios, read income statements and analyze recent stock movement. AAII created A+ Investor, a robust data suite that condenses data research in an actionable and customizable way suitable for investors of all knowledge levels, to help investors with that task.

AAII’s proprietary stock grades come with A+ Investor. These offer intuitive A–F grades for more than just value. It is possible for a stock to appear cheap based on one valuation metric but appear expensive on another. It is also possible for one valuation ratio to be associated with outperforming stocks during certain periods of time but not others. Some stocks may even have null values for certain metrics like the price-earnings ratio or the price-to-book ratio but not others. An example of this would be a company with losses instead of profits or a negative book value because of heavy borrowing. Negative earnings or book value result in non-meaningful ratios that are left blank or null.

Click the button below to learn more about A+ Investor and subscribe today.

3 Undervalued Oil & Gas - Exploration and Production Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 3 undervalued stocks in the Oil & Gas - Exploration and Production industry for Wednesday, January 24, 2024. Let’s take a closer look at their individual scores to see how they measure up against each other and the Oil & Gas - Exploration and Production industry median.

The Value Grade is assigned based on how each stock’s composite valuation compares to all other stocks.

The process for assigning grades starts with each variable for a given stock. The percentile rankings for all valid ratios that a stock has are calculated. So, for instance, a stock could have a price-to-book ranking in the 43rd percentile, a price-earnings ranking in the 67th percentile, a price-to-sales ranking in the 23rd percentile, etc. Then, those rankings are averaged for each stock. (A minimum of two valid variables are required, though all six will be used if available.)

Once the average of the individual variables is calculated, that average is ranked against all stocks. Put another way, each stock’s composite valuation is compared to all other stocks. These ranks are then sorted into quintiles from the cheapest 20% (a grade of A) to the most expensive 20% (a grade of F).

As always, we recommend that you conduct proper due diligence and research before investing in any security. We also suggest that investors utilize numerous grades, not just value, when it comes to deciding whether a company is a good fit for their allocation needs.

Enerplus Corp’s Value Grade

Value Grade:

Enerplus Corporation is a Canada-based independent oil and gas exploration and production company. The Company is focused on the development of North American oil and natural gas assets. Its portfolio includes light oil assets in the Bakken, North Dakota, and a position in the Marcellus natural gas shale region in northeast Pennsylvania. The Company's operations are concentrated in the core of the Bakken/Three Forks light oil shale play where it holds approximately 235,600 net acres in North Dakota. The acreage is primarily located across the Fort Berthold Indian Reservation, as well as in Williams and Dunn Counties. It holds an interest in approximately 32,500 net acres in the dry gas window of the Marcellus shale in northeast Pennsylvania. This non-operated position is located in Susquehanna, Bradford, Wyoming, Sullivan and Lycoming counties.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Enerplus Corp has a Value Score of 90, which is considered to be undervalued.

When you look at Enerplus Corp’s price-to-sales ratio at 1.67 compared to the industry median at 1.74, this company has a lower price relative to revenue compared to its peers. This could make Enerplus Corp’s stock more attractive for value investors.

Enerplus Corp’s price-earnings ratio is 4.78 compared to the industry median at 7.21. This means it has a lower share price relative to earnings compared to its peers. This could make Enerplus Corp more attractive for value investors.

Now, let’s assess Enerplus Corp’s EV/EBITDA ratio, also known as enterprise multiple. At 4.9, when compared to the industry median of 4.5, the company may be considered overvalued in relation to its peers. Value investors could use the enterprise multiple to identify stocks that are considered overvalued or undervalued relative to their industry.

Shareholder yield is the sum of a stock’s dividend yield (paid over previous 12 months minus special dividends) and the percentage of net share buybacks over the previous 12 months. Enerplus Corp’s shareholder yield is higher than its industry median ratio of 1.48%. Value investors may look for an attractive shareholder yield because it can be a powerful tool for identifying if the company has a good management team.

As one of the most common value metrics, the price-to-book ratio evaluates a company’s current market price relative to its book value. Enerplus Corp’s price-to-book ratio is higher than its industry median ratio of 1.20. This could make Enerplus Corp less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Enerplus Corp’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Enerplus Corp’s price-to-free-cash-flow ratio is lower than its industry median ratio of 7.57. This could make Enerplus Corp more attractive because the lower P/FCF ratio indicates that Enerplus Corp is undervalued. The P/FCF ratio metric can also be viewed over a long-term time frame to see if the company's cash flow to share price value is generally improving or worsening.

Murphy Oil Corp’s Value Grade

Value Grade:

Murphy Oil Corporation is an independent oil and natural gas exploration and production company. The Company is engaged in both onshore and offshore operations and properties. The Company’s geographic segments include the United States, Canada, and all other countries. It produces crude oil, natural gas and natural gas liquids primarily in the United States and Canada and explores for crude oil, natural gas and natural gas liquids in targeted areas worldwide. In the United States, it produces crude oil, natural gas liquids and natural gas primarily from fields in the Gulf of Mexico and in the Eagle Ford Shale area of South Texas. It holds approximately 133 thousand gross acres in South Texas in the Eagle Ford Shale unconventional oil and natural gas play. In Canada, it holds working interests in Tupper Montney (100% owned), Kaybob Duvernay, and two non-operated offshore assets, such as the Hibernia and Terra Nova fields, located offshore Newfoundland in the Jeanne d’Arc Basin.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Murphy Oil Corp has a Value Score of 86, which is considered to be undervalued.

Murphy Oil Corp’s price-earnings ratio is 8.0 compared to the industry median at 7.2. This means that it has a higher price relative to its earnings compared to its peers. This makes Murphy Oil Corp less attractive for value investors.

Murphy Oil Corp’s price-to-book ratio is higher than its peers. This could make Murphy Oil Corp less attractive for value investors when compared to the industry median at 1.20.

You can read more about Murphy Oil Corp’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

SM Energy Co’s Value Grade

Value Grade:

SM Energy Company is an independent energy company. The Company is engaged in the acquisition, exploration, development, and production of oil, gas, and natural gas liquid (NGL) in the state of Texas. The Company?s asset portfolio is comprised of assets in the Midland Basin of West Texas and in the Maverick Basin of South Texas. The Company?s Midland Basin assets are located in the Permian Basin in West Texas is comprised of approximately 80,000 net acres, and include its RockStar assets in Howard and Martin Counties, Texas and its Sweetie Peck assets in Upton and Midland Counties, Texas (Midland Basin). Its South Texas assets are comprised of approximately 155,000 net acres located in Dimmit and Webb Counties, Texas (South Texas). The Company?s operations in South Texas are focused on production from the Eagle Ford shale formation and Austin Chalk formation, and further development of the Austin Chalk formation.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

SM Energy Co has a Value Score of 92, which is considered to be undervalued.

SM Energy Co’s price-earnings ratio is 5.3 compared to the industry median at 7.2. This means that it has a lower price relative to its earnings compared to its peers. This makes SM Energy Co more attractive for value investors.

SM Energy Co’s price-to-book ratio is lower than its peers. This could make SM Energy Co fairly attractive for value investors when compared to the industry median at 1.20.

You can read more about SM Energy Co’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Other Oil & Gas - Exploration and Production Stock Grades

Value is just one of the five Stock Grades included in our A+ Investor service. AAII members can see the top-graded stocks—those with grades of A or B for value, growth, momentum, earnings estimate revisions and quality—on the A+ Stock Grades Screener.

Also, if you want full access to all of AAII’s premium services, you can subscribe to one convenient bundled plan called AAII Platinum where you can try out A+ Investor, AAII Dividend Investing, the Stock Superstars Report, Growth Investing and VMQ Stocks. With the other premium services, you can dive deep into additional metrics, portfolios, commentary and information about Oil & Gas - Exploration and Production stocks as well as other industrys.

Choosing Which of the 3 Best Oil & Gas - Exploration and Production Stocks Is Right for You

Choosing which value stocks to invest in will ultimately depend on your individual goals and allocation; however, comparing similar value stocks in the same industry can help you analyze which might be better investments for you in the long run. So, let’s take a look at the Value Grade for all of our stocks.

• Enerplus Corp stock has a Value Grade of A.
• Murphy Oil Corp stock has a Value Grade of A.
• SM Energy Co stock has a Value Grade of A.

Now that you have a bit more background about each of the 3 undervalued stocks in the Oil & Gas - Exploration and Production industry as well as their overall grades, it’s time for you to conduct additional research to see if these could fit your portfolio needs based on your goals and risk tolerance. AAII can help you figure out both and identify which investments align with what works best for you.

We do so through a program of education that teaches you to invest for yourself and become an effective manager of your own wealth—no more relying on others for your financial independence. You can rely on AAII for timeless articles on financial planning and stock-picking, unbiased research and actionable analysis that makes you a better investor.

A+ Investor adds to that qualitative teaching by giving you a powerful data suite that helps you whittle down investment decisions to find stocks, exchange-traded funds (ETFs) or mutual funds that meet your needs.

Additional Resources About Oil & Gas - Exploration and Production Stocks

Want to learn more about Oil & Gas - Exploration and Production stocks to see if they could be the right investment for you? Check out some additional resources and articles to help you on your financial journey.

• 3 Undervalued Oil & Gas - Exploration and Production Stocks for Wednesday, January 24
• What You Need to Know About Antero Resources Corp's Q3 Earnings
• What You Need to Know About APA Corp (US)'s Q3 Earnings
• What You Need to Know About Berry Corporation (Bry)'s Q3 Earnings

AAII Disclaimer

We make no representations or warranties that any investor will, or is likely to, achieve profits similar to those shown, because past, hypothetical or simulated performance is not necessarily indicative of future results. Before making an investment decision, you should consider your circumstances and whether the information on our content is applicable to your situation. This information was prepared in good faith and we accept no liability for any errors or omissions. The full disclaimer can be read here.