Image: Shell
With the oil price 40% below its peak of $122 per barrel in June 2022, the heyday for energy companies seems to be over. Many oil stocks are also lagging the broad market this year. Does that offer buying opportunities?
The S&P 500 Energy Index is down 10% this year, while the broad S&P 500 is up 18% in the green over the same time frame.
stragglers
Many oil stocks are also lagging in Europe. The TotalEnergies share is more than 9% down this year and BP has to give up 1.8%. Compared to this, Shell stands out positively, with a price increase of 5.6%, but that is also lower than the price gain of almost 12% that can be attributed to the AEX.
The fact that oil companies are not having their best year offers long-term investors the opportunity to buy oil companies cheaply. InvestorPlace listed stocks that are undervalued according to the US investment website.
1. Shell
Shell, which is no longer royal, is doing everything it can to pamper shareholders. In June this year, the company announced that it would increase its quarterly dividend by 15%, to 54 cents per share. This implies a dividend yield of 3.5%. On top of that is a share buyback program of at least $5 billion in the second half of 2023.
In addition, the oil giant no longer wants to have reduced its oil production by 20% by 2030, which gives the group more investment options.
This positive news for investors has meant that Shell is doing relatively well on the stock market compared to its peers. With a forward price/earnings ratio of 5, the stock is still cheap.
2. Occidental Petroleum
With a share price loss of 27.7% over the past five years, this American oil company failed to create long-term value for investors.
Still, that hasn’t stopped legendary investor Warren Buffett from building a 25% position in Occidental. Every time the price drops below $60, he buys more shares.
Buffett started buying in early 2022, when Russia invaded neighboring Ukraine, but has yet to post a return as the price of oil and Occidental Petroleum have not moved up since then. Nevertheless, Buffett’s purchases send a signal that he has confidence in the company and in the prospects of the oil market.
3. Chevron
The price of this American oil giant is more than 11% lower this year and even 20% below the 52-week peak. As a result, the P/E is barely 8 and an attractive dividend yield of almost 4% remains.
Chevron has a massive $75 billion share buyback program outstanding, but it has no end date, so how quickly the shares will be repurchased is uncertain. The company also makes acquisitions to increase profits.
Moreover, Chevron can operate freely and the group is less bound to, for example, European governments that demand green – often low-profit – investments. The stock is attractively priced and deserves investor attention, according to InvestorPlace.
2023-07-21 06:10:00
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