Three Undervalued Energy Stocks to Grow Your Portfolio in 2021
With markets performing as well as they have been, finding a good deal can seem impossible. But despite record-setting highs, there are still undervalued energy stocks out there.
In fact, some entire sectors are trading at a discount. Despite finishing 2020 with a strong fourth quarter, the energy sector still finished the year in the red. And it makes perfect sense. With fewer people driving to work due to the pandemic, fuel consumption was down. Holiday travel was way down too. An estimated 34 million fewer people hit the highways and airways last holiday season.
But with vaccines getting stuck into arms across the country, this sector won’t be underperforming for long. In fact, there’s reason to believe it will bounce back and then some. People have been cooped up too long. They’ve had a lot of time to plan and save for big trips. School buses will soon return to the road. Offices (some more than others) will slowly begin to fill up again. That means those big energy-sucking buildings will start being used again.
To put it simply, the energy sector is going see a big bounce when some level of normalcy returns. And that’s why these three energy stocks are looking like they could have a monstrous year.
Three Undervalued Energy Stocks
- Williams Companies (NYSE: WMB)
- Schlumberger NV (NYSE: SLB)
- Diamondback Energy (Nasdaq: FANG)
A Well-Established Midstream Energy Outfit
There’s a lot to like about Williams Companies from an investment standpoint. This pipeline operator overcame its fair share of obstacles in 2020. The company had to draw on its revolver loan to repay debt maturities. But that’s not expected to be the case in 2021. The company has plenty of free cash flow. And once the residual storm of 2020 has officially been weathered, Williams will be in a strong position for rapid growth.
This is showcased by its especially attractive P/E ratio. And on top of that, Williams also offers a respectable 7.11% dividend. That puts it among the 10 best dividend yields in the S&P 500. A strong future and a healthy dividend make this one of the most undervalued stocks of 2021.
The Big Rebound of Light, Sweet Crude
Shares of Schlumberger NV underwent an impressive ricochet at the end of 2020. Shares shot up more than 40% in the second half of the year. But there’s good reason to believe it’s not quite done heading higher.
Schlumberger was hit hard when the price of West Texas Intermediate (WTI) crude dipped into uncharted territory last year. And that was reflected in its stock price. But with a full recovery of WTI value still unfolding, the best appears yet to come for this oilfield services company.
Schlumberger is also poised to take advantage of the surprise move by Saudi Arabia to cut 1 million barrels of daily crude production from February through March.
This has oil producers and explorers returning to business as usual. As reported in the Baker Hughes rig count, drillers are getting back to work. And that could lead to a big boost in demand for oilfield service companies like Schlumberger that help streamline the drilling process. With operations in more than 120 countries and the rising cost in crude, Schlumberger is clearly an undervalued energy stock. The company has an excellent medium-term outlook and a respectable dividend yield. Electric vehicles are still a long way from fully replacing traditional petrol ones. And until that starts to happen, Schlumberger will be in a great position to benefit financially and reward shareholders.
A Survival Story
The global pandemic really sunk its teeth into Diamondback Energy. Before COVID-19, Diamondback was one of the fastest growing shale oil producers in the country. The company tripled its oil production from 2017 to 2019. During that time, this new kid on the block also started issuing dividend payments to shareholders.
Despite hiccups of various sizes, Diamondback was able to continue those payments through 2020. And that is more than likely to continue for the foreseeable future. After a strong return to form in the latter half of 2020, Diamondback not only returned to form, but is actively expanding. The company recently announced it would acquire the natural gas outfit QEP Resources and Guidon Operating LLC.
The overall effects of these acquisitions have yet to be seen. But the agreements give Diamondback a whole lot more acreage to explore and profit from. It wouldn’t be surprising at all to see this energy company’s shares return to their 2018 highs this year. And if that happens, that would clearly make Diamondback one of the most undervalued energy stocks available.
The Bottom Line on These Undervalued Energy Stocks
All investors are looking for a good deal. And value stocks can provide just that. They offer a solid chance to boost the future value of their owners’ portfolios. And the same goes for these undervalued energy stocks.
As a country, we’re becoming more focused on renewable forms of energy. But that future isn’t quite here yet. Until that happens, investors can reap big rewards from more traditional energy providers. Nonetheless, plenty of people just don’t have it in their heart to invest in these companies. There are plenty of ways to work toward your financial goals. Whether you’re an ESG investor or just someone looking for guidance in the market, we suggest signing up for the Profit Trends e-letter. By doing so you’ll receive expert insight on the new developments that are moving tomorrow’s markets.
About Matthew Makowski
Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about the markets for 20 years. Equally comfortable identifying value stocks as he is discounts in the crypto markets, Matthew began mining Bitcoin in 2011 and has since honed his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dog, Dorito.