Lessons from a 20-year-old oil stock investor

0

  • (0:20) – Cyclical Value Stocks: Markets and In-Demand Products
  • (3:30) – Are homebuilder stocks attractively priced right now?
  • (9:00) – The Rollercoaster of Energy Investing: Timing 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 recap: TOL, APA, PXD, EOG, OAS, CDEV, XOM
  • [email protected]

Welcome to episode #271 of the Value Investor podcast.

Each week, Tracey Ryniec, the editor of Zacks Value Investor Portfolioshares some of his best investment advice and stock picks.

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

But energetic actions are also called “cyclical” actions. This means that their earnings move in cycles, with big bull years and then long bear years.

Buy-and-hold investors who want to hold forever should have a plan when buying cyclical stocks. Energy stocks, for example, had a big bull rally from 1999 to 2008, but then trended down from 2009 to 2020 when crude turned 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 at the start of the previous bull market saga, in 2000-2002. She bought APA Corp.APA and ExxonMobil XOM.

It was a good time for energy stocks.

APA gained 368% from January 2, 2001 to July 1, 2008, when WTI traded as high as $140 a barrel. While ExxonMobil grew 84% over the same period.

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

There was a second crash in energy stocks, in 2014-15, when crude again dipped below $30 a barrel.

Tracey sold her ExxonMobil stock in 2016. However, she still owns her APA stock. 20 years later.

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

New bull market in energy stocks?

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

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

But where should value investors look in 2022?

3 cheap energy stocks for 2022

1. Pioneer of natural resources PXD

Pioneer Natural Resources is a major independent oil producer in the Permian Basin. In an industry where companies are highly leveraged, Pioneer Natural Resources has one of the best balance sheets.

In 2022, it will pay 80% of its free cash flow to shareholders. This includes a basic dividend, special dividends and a share buyback.

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

Revenues are expected to increase by 72% in 2022.

Tracey recently added Pioneer Natural Resources to her personal portfolio.

2. EOG Resources EOG

EOG Resources is another major exploration and production company for raw and natural gas. In 2021, EOG Resources recorded record free cash flow of $5.5 billion.

It paid both a basic dividend and a special dividend, including a recent special dividend of $1.00.

EOG Resources is expected to increase its profits by 37% in 2022.

The shares have climbed 113% over the past 2 years, but are still trading with a forward P/E of 9.9.

Is there still time to buy EOG Resources?

3. Centennial Resource Development CDEV

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

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

Centennial Resource shares have been red hot over the past 2 years, gaining 473%. But it’s also a sub-$10 stock, always popular with investors.

Centennial Resource does not pay a dividend but recently announced a $350 million share buyback plan.

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

What else should you know about investing in cyclical stocks like 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.]

7 best stocks for the next 30 days

Just Released: Experts distill 7 elite stocks from the current Zacks No. 1 Ranking 220 Strong Buys list. They consider these tickers “most likely for early price increases.”

Since 1988, the full list has beaten the market more than 2 times with an average gain of +25.4% per year. So be sure to give your immediate attention to these 7 handpicked ones.

Discover them now >>

Click to get this free report

Exxon Mobil Corporation (XOM): Free Stock Analysis Report

APA Corporation (APA): Free Stock Analysis Report

Pioneer Natural Resources Company (PXD): Free Stock Analysis Report

EOG Resources, Inc. (EOG): Free Stock Analysis Report

Centennial Resource Development (CDEV): Free Stock Analysis Report

To read this article on Zacks.com, click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Share.

Comments are closed.