Buy recommendations U.S. Independent Devon Energy (NYSE:DVN), Canadian producer Suncor Energy (NYSE:SU) and Emerging Market stock Gazprom (OTCPK:OGZPY) have each broken out to the upside in stock price after trading in a flat, narrow range for a year and a half. Following the intense selling pressure that drove stock prices down more than half in 2008, continued systematic selling apparently kept a lid on appreciation for the next two years. As the selling imbalance may have finally dissipated, stock prices have climbed above the flat 200-day average to begin a new advance that in the 2010s may carry past the highs of the 2000s.
On a fundamental basis, the companies are generating stable unlevered cash flow. Estimates of Present Value represent modest multiples of cash flow, particularly considering the long life of resources (Adjusted R/P). Registering 0.75 for DVN, 0.79 for SU and 0.41 for OGZPY, McDep Ratios, which compare current enterprise value with present value, are low along with other indicators supporting investor interest.
Present value is directly proportional to the rising price of crude oil measured by the latest futures price for the next six years of $92 a barrel tracking above the 40-week average of $86 . Price rises as economic growth stimulates demand, at the same time politics and inflation limit supply.
Originally published on November 9, 2010.