After hitting a low in the mid-$70s in late September, crude oil has soared near $90 per barrel on rumors that OPEC would reduce supply by a startling 2 million barrels per day. These three oil stocks are drastically undervalued.
1. Diamondback Energy Stock: Capitalizing on Its Low Stock
Diamondback Energy ( NASDAQ:FANG ) predicts that at $90 per barrel, it can generate $4.3 billion in free cash flow . The oil company’s market capitalization is $24.1 billion. These figures indicate that the firm is trading at 5.6 times its free cash flow, or an 18% free cash flow yield. Compared to the main stock market indices, it seems extremely cheap. The S&P 500 now has a free-cash-flow yield of 5%, while the Nasdaq has a lower yield of 4%.
Diamondback Energy has profited from its low stock price. The oil business recently repurchased $303 million in shares in the second quarter and another $200 million in the third quarter. Meanwhile, its share buyback authority was recently increased to $4 billion. This should allow the corporation to continue devouring its dirt-cheap shares.
2. Devon Energy: Saving money via the contract
Devon Energy ( NYSE:DVN ) expects to generate $6 billion in free cash at $85 oil, which will climb in tandem with oil prices. With a market capitalization of $46.7 billion, it trades at less than 7.7 times free cash flow, yielding more than 13%. In comparison to the S& P 500 and Nasdaq, it is substantially undervalued.
Devon has also increased its potential to create cash by allocating some of its financial flexibility to the acquisition of cash-generating oil assets. RimRock Oil and Gas and VALIDUS ENERGY had their leasehold rights and associated properties purchased by the businesses. These highly accretive transactions will allow Devon to generate more cash in the future, making the stock seem even cheaper.<...
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