Solid Energy Play About to Take Off

Jay Peroni, Lead Analyst, CEO and FounderBlog (Public), Growth & Income, Jay Stock Review

About to Take Off?

OPEC’s recent oil production cuts combined with strong oil demand have put energy stocks in a better light here in 2017. Short-term energy forecasts are a lot more stable in 2017 than they were last year.  Now is also a seasonally strong time of year for oil companies.  The January-April period is typically a seasonally strong time for oil prices and energy related stocks.

Then in the spring and summer, demand for oil and gasoline continues to climb as vacations and travel pick up.  This trend tends to favor getting in on oil companies now as opposed to later.

We also now have a pro-energy Administration. President Trump’s approval of the Dakota and Keystone pipelines shows his support and favor for oil and energy companies, Heck, one of his key positions, Secretary of State, was filled by former Rex Tillerson, former Exxon CEO. This shows his Administration will favor domestic energy companies.

Additionally, stronger year-over-year comparisons for the energy sector in Q1 2017. If you remember the first quarter of 2016? Oil prices and stocks were plummeting to start 2016. That means oil companies have a low hurdle to clear when they report Q1 2017 numbers. 2016 was marked with a fast rising U.S. Dollar, a global energy glut, and plunging oil prices. Many of these factors have faded so far in 2017, meaning oil companies should see better earnings in 2017.

Today’s investment idea takes a look at a solid energy company worth a closer look.

Solid Independent Oil Producer

Company:                 Devon Energy (DVN)

Industry:                   Independent Oil & Gas

Sector:                        Energy

Dividend:                 $0.24 annually per share

Yield:                           0.57%

Dividend Safety:    Grade B

Profile: Devon Energy is a leading independent energy company engaged in finding and producing oil and natural gas. Based in Oklahoma City and included in the S&P 500, Devon operates in several of the most prolific oil and natural gas plays in the U.S. and Canada with an emphasis on a balanced portfolio. The Company is the second-largest oil producer among North American onshore independents.

Chart:


Reasons to Buy

  • Devon’s solid financial standing should help the firm weather the ups and downs of oil and gas prices.
  • It has flexibility to develop its existing inventory and also grow its acreage in emerging plays.
  • Devon’s recently offloaded its foreign assets to focus on what it does best. This allows the firm to focus on projects with the best return on investment.
  • Devon’s portfolio mix includes solid oil and gas assets along with short and long term project opportunities.

5 Point Stock Inspection

  1. Earnings Trend: Grade B
  • Solid earnings growth (greater than 20% year over year)
  • Positive Analyst Earnings Revisions
  • Earnings growth last quarter greater than 20% over same quarter last year
  1. Financial Health: Grade B
  • Stronger financial profile than 37.45% of stock universe
  • Growth rate in market value is greater than growth rate in book value
  • Operating profit margin greater than industry average
  1. Momentum: Grade A
  • Strong Momentum: Stock in top 30% of all stocks.
  • Relative Strength is 93 out of 100
  • Stock up over 100% over the past 12 months
  1. Risk: Grade B
  • Higher risk
  • Beta twice that of the market (2.17)
  • Has lower risk profile than just 41.09% of stock universe
  1. Valuation: Grade B
  • P/E less than industry average
  • Forward P/E at 22.26, is less than industry average
  • Good buy under $45/share

Overall:  Grade A

Bottom Line

Devon Energy (DVN) is a solid choice if you are looking to gain energy exposure and want a solid company with great upside potential.

 

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Disclaimer

While Dual Returns has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.