(0:45). - Should You Be Investing In Energy Stocks? (4:30) - Breaking Down Big Oil Companies (15:45) - Tracey’s Top Stock Picks (29:00) - Episode Roundup: XOM, CVX, FANG, EOG, PXD, MGY Podcast@Zacks.com
Welcome to Episode #220 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks
Value Investor portfolio, shares some of her top value investing tips and stock picks.
Out of all the sectors, energy was among those most hated by investors in 2020.
While shares finally managed to rally after the November announcement of the Pfizer vaccine, most of the stocks still remain below their pre-pandemic February 2020 highs.
Additionally, crude has again re-taken $50 with some energy analysts believing WTI crude will rise to as high as $60 in the first half of 2021 as the global economy reopens.
Definition of a Value Trap
If you recall, value traps can often look like value stocks.
They are stocks that have often been ignored by Wall Street.
They’ve been sold off and lag the rest of the market.
They could even have low valuations, with classic value P/E or P/S ratios.
But the key is to look at the earnings. Are they growing this year and next? Are the analysts raising estimates, or cutting them?
A value trap will have falling earnings. A true value stock will see growth.
What’s happening with the energy stocks this year?
5 Energy Stocks: Values or Traps?
Exxon Mobil Corp. ( XOM Quick Quote XOM - Free Report) has become a favorite of the analysts and investors. Shares are up nearly 40% in the last 3 months but remain down 30% over the last year. It’s also paying that huge dividend, which has not been cut, yielding 7.3%. Is this big oil company a value or a trap?
Chevron Corp. ( CVX Quick Quote CVX - Free Report) did not sell-off as badly as Exxon in 2020, but it too remains under its pre-pandemic highs. Shares are still down 19.8% over the last year. Chevron also pays a juicy dividend, currently yielding 5.5%. Are the earnings expected to rebound in 2021?
Diamondback Energy ( FANG Quick Quote FANG - Free Report) has doubled in the last 3 months but still remains down 31% on the year. Diamondback has a forward P/E of just 13.7 and a PEG ratio of 0.6. It’s cheap. Does that mean it’s a value, or a trap?
Pioneer Natural Resources ( PXD Quick Quote PXD - Free Report) is one of the top exploration companies in the industry with a pristine balance sheet. It’s an investor favorite. It’s shares are down on the year, but “only” 9.6% after it rallied 49% over the last 3 months. Is it too late to get in?
Magnolia Oil & Gas ( MGY Quick Quote MGY - Free Report) is the smallest company in this group, with a market cap of just $2.2 billion. Its in South Texas, in the Eagle Ford and Austin Chalk formations. In the third quarter of 2020, it had free cash flow of $46 million and repurchased shares. Are the earnings estimates moving in the right direction in 2021?
What else do you need to know about the energy stocks in 2021?
Listen to this week’s podcast to find out.
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