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Lessons from a 20-Year Oil Stock Investor

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  • (0:20) - Cyclical Value Stocks: In Demand Markets and Products
  • (3:30) - Are The Homebuilders Stocks At Attractive Prices Right Now?
  • (9:00) - The Roller Coaster Ride Of Investing In Energy: Timing The Cycles Correctly
  • (21:10) - The Current State Of The Energy Market: Are There Buying Opportunities?
  • (39:20) - Tracey’s Top Stock Picks: Stocks To Keep On Your Radar
  • (47:00) - Episode Roundup: TOL, APA, PXD, EOG, OAS, CDEV, XOM


Welcome to Episode #271 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.

Energy stocks continue to be the best performing sector in 2022, as they were in 2021. They’re also still cheap as the earnings are on the rise.

But energy stocks are also known as “cyclical” stocks. That means their earnings move in cycles, with big bull years, and then long bear years.

Buy and hold investors who want to hold for forever, should have a plan when buying cyclicals. Energy stocks, for example, had a big bull rally from 1999 to 2008 but then were in a bear trend from 2009 to 2020, when crude went negative during the pandemic.

But if you time it correctly, cyclical stocks can be big winners for value investors.

Tracey’s 20-Year Saga in Energy Stocks

Tracey bought her first energy stocks early in the prior bull market saga, in 2000-2002. She bought APA Corp. (APA - Free Report) and ExxonMobil (XOM - Free Report) .

This was a good era for the energy stocks.

APA gained 368% from Jan 2, 2001 to July 1, 2008, when WTI traded as high as $140 a barrel. While ExxonMobil rose 84% during that same time.

However, both APA and ExxonMobil crashed during the Great Recession, bottoming in 2009.

There was a second energy stock crash, in 2014-2015, when crude plunged under $30a barrel again.

Tracey sold her ExxonMobil shares in 2016. She is still holding her APA shares however. 20 years later.

And both APA and ExxonMobil shares hit new multi-year lows during the coronavirus sell-off in 2020.

New Bull Market in Energy Stocks?

But if you knew when to buy and sell, the energy stocks were not bad investments. Cyclicals work, if you trade the cycle.

The Energy ETF XLE is up 48% over the last year, easily beating the S&P 500 which is up just 13%.

But where should value investors be looking in 2022?

3 Cheap Energy Stocks for 2022

1.       Pioneer Natural Resources (PXD - Free Report)

Pioneer Natural Resources is a large independent oil producer in the Permian Basin. In an industry where the companies have a lot of debt, Pioneer Natural Resources has one of the best balance sheets.

In 2022, it’s paying out 80% of its free cash flow to shareholders. That includes a base dividend, special dividends and a share buyback.

Pioneer Natural Resources shares are cheap, with a forward P/E of 10.5, even as shares hit new 52-week highs.

Earnings are expected to rise 72% in 2022.

Tracey recently added Pioneer Natural Resources to her own personal portfolio.

2.       EOG Resources (EOG - Free Report)

EOG Resources is another large exploration and production company of crude and natural gas. In 2021, EOG Resources saw a record $5.5 billion in free cash flow.

It has paid out both a base dividend and a special dividend, including a recent $1.00 special dividend.

EOG Resources is expected to grow earnings by 37% in 2022.

Shares have soared 113% in the last 2 years but still trade with a forward P/E of 9.9.

Is there still time to buy EOG Resources?

3.       Centennial Resource Development (CDEV - Free Report)

Centennial Resource is an independent oil producer in the Delaware Basin of West Texas which is a sub-basin of the Permian. It’s a smaller company with a $2.4 billion market cap.

Earnings are expected to jump 91% in 2022 to $1.32 from $0.69.

Shares of Centennial Resource have been red hot over the last 2 years, gaining 473%. But it’s also a stock under $10, which are always popular with investors.

Centennial Resource doesn’t pay a dividend but it recently announced a $350 million share buyback plan.

Centennial Resource is a Zacks Rank #1 (Strong Buy).

What else do you need to know about investing in cyclical stocks like the oil stocks?

Tune into this week’s podcast to find out.

[In full disclosure, Tracey owns shares of APA and PXD in her personal portfolio.]