With oil and commodity prices continuing to rise every day (thanks Big Ben!), it seems everything with any sort of derivative play on rising commodity prices has been going up...everything, that is, except for the major oil stocks themselves.
Despite record profits, great balance sheets, and huge growth prospects, take a look at the valuations of four of the super-major oil producers.
|Name||Ticker||EV to EBITDA||P/E||ROE||P/B||Div Yield|
|Exxon Mobil Corp||XOM||8.19||12.51||23.60||2.96||2.09%|
Despite being among the best poised to capitalize on the rise in oil prices, the super majors, on average, yield almost 3% and sport a P/B barely over 2. The value metrics are a little skewed because of BP's losses from the oil spill, but the other three trade for under 12x trailing earnings and about 10x forward earnings.
Even better, the companies are poised to rapidly grow profits. As Barrons notes, this quarter represents the best quarter for earnings for big oil companies since 2008, and the full year could come in as the best year ever for oil company earnings. And with the OECD forecasting $120 per barrel oil in the not-so-distant future, their future profits look even brighter.
BP looks especially interesting at these prices. Investors have spurned the stock as images of the oil spill still weigh on them. While BP's expenses will remain eleveated from the clean up costs, they are still generating massive profits and trade at around 7 times forward earnings. Plus, some investors think they trade at as much as a 70% discount to their peers.
So, if you're looking for a way to protect your portfolio from rising oil prices, don't bother with ETFs or complicated hedges. Go straight to the source and buy the undervalued super majors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.