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.

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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 Friday, October 27, 2023. 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.

Matador Resources Co’s Value Grade

Value Grade:

Matador Resources Company is an independent energy company. The Company is engaged in the exploration, development, production and acquisition of oil and natural gas resources in the United States, with an emphasis on oil and natural gas shale and other unconventional plays. The Company operates through two business segments: exploration and production and midstream. The exploration and production segment is engaged in the exploration, development, production and acquisition of oil and natural gas resources in the United States and is focused primarily on the oil and liquids-rich portion of the Wolfcamp and Bone Spring plays in the Delaware Basin in Southeast New Mexico and West Texas. The midstream segment conducts midstream operations in support of its exploration, development and production operations and provides natural gas processing, oil transportation services, oil, natural gas and produced water gathering services and produced water disposal services to third parties.

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.

Matador Resources Co has a Value Score of 68, which is considered to be undervalued.

When you look at Matador Resources Co’s price-to-sales ratio at 2.68 compared to the industry median at 1.84, this company has a higher price relative to revenue compared to its peers. This could make Matador Resources Co’s stock less attractive for value investors.

Matador Resources Co’s price-earnings ratio is 8.55 compared to the industry median at 6.09. This means it has a higher share price relative to earnings compared to its peers. This could make Matador Resources Co less attractive for value investors.

Now, let’s assess Matador Resources Co’s EV/EBITDA ratio, also known as enterprise multiple. At 4.7, when compared to the industry median of 3.7, 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. Matador Resources Co’s shareholder yield is lower than its industry median ratio of 1.32%. 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. Matador Resources Co’s price-to-book ratio is higher than its industry median ratio of 1.42. This could make Matador Resources Co less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Matador Resources Co’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Matador Resources Co’s price-to-free-cash-flow ratio is lower than its industry median ratio of 7.38. This could make Matador Resources Co more attractive because the lower P/FCF ratio indicates that Matador Resources Co 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.

Pioneer Natural Resources Co’s Value Grade

Value Grade:

Pioneer Natural Resources Company is an independent oil and gas exploration and production company. The Company explores for, develops and produces oil, natural gas liquids (NGLs) and gas in the Midland Basin in West Texas. The Company conducts exploitation and exploration activities in the Spraberry/Wolfcamp oil field located in the Midland Basin in West Texas. The Company holds approximately 964 thousand gross acres, of which 948 thousand gross acres are located in the Spraberry/Wolfcamp field in the Midland Basin of West Texas. The Company has a joint venture with Sinochem Petroleum USA LLC, which encompasses approximately 212 thousand gross acres. The oil produced from the Spraberry/Wolfcamp field in the Midland Basin is West Texas Intermediate Sweet, and the gas produced is casinghead gas with an average energy content of 1,400 British thermal unit (Btu). The oil and gas are produced primarily from six formations, including Spraberry, Jo Mill, Dean, Wolfcamp, Strawn and Atoka.

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.

Pioneer Natural Resources Co has a Value Score of 61, which is considered to be undervalued.

Pioneer Natural Resources Co’s price-earnings ratio is 10.4 compared to the industry median at 6.1. This means that it has a higher price relative to its earnings compared to its peers. This makes Pioneer Natural Resources Co less attractive for value investors.

Pioneer Natural Resources Co’s price-to-book ratio is lower than its peers. This could make Pioneer Natural Resources Co more attractive for value investors when compared to the industry median at 1.42.

You can read more about Pioneer Natural Resources 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.

Talos Energy Inc’s Value Grade

Value Grade:

Talos Energy Inc. is a technically driven independent exploration and production company. The Company has its operations in the United States and offshore Mexico, both through upstream oil and gas exploration and production and the development of carbon capture and sequestration (CCS) opportunities. The Company operates through the exploration and production of oil, natural gas and natural gas liquid (NGLs) segment (Upstream Segment). It has operations across a range of Deepwater and shallow water assets in both the United States and Mexico. Its area of focus in the United States is the Gulf of Mexico Deepwater and its core areas are Green Canyon, Mississippi Canyon and Shelf and Gulf Coast. Green Canyon is a Deepwater region in the Central United States, Gulf of Mexico. Mississippi Canyon is a Deepwater region in the eastern portion of the Central United States, Gulf of Mexico. Its CCS portfolio includes multiple future project sites along the United States Gulf Coast.

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.

Talos Energy Inc has a Value Score of 74, which is considered to be undervalued.

Talos Energy Inc’s price-earnings ratio is 3.9 compared to the industry median at 6.1. This means that it has a lower price relative to its earnings compared to its peers. This makes Talos Energy Inc more attractive for value investors.

Talos Energy Inc’s price-to-book ratio is higher than its peers. This could make Talos Energy Inc less attractive for value investors when compared to the industry median at 1.42.

You can read more about Talos Energy Inc’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.

• Matador Resources Co stock has a Value Grade of B.
• Pioneer Natural Resources Co stock has a Value Grade of B.
• Talos Energy Inc stock has a Value Grade of B.

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 Friday, October 27
• 6 Undervalued Oil & Gas - Exploration and Production Stocks for Thursday, October 26
• Why Antero Resources Corp’s (AR) Stock Is Up 4.80%
• 3 Undervalued Oil & Gas - Exploration and Production Stocks for Wednesday, October 25

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