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I continue to like the energy sector based on the low valuations still available in a myriad of stocks. It currently has the highest weighting in my portfolio, as I believe oil prices are likely to stay high for the intermediate future. Here are two unloved, large capitalization equities I currently like in the sector for the long-term investor. Both are more than 30% under consensus price targets.

Marathon Petroleum (NYSE:MPC), together with its subsidiaries, engages in refining, transporting, and marketing petroleum products primarily in the United States and internationally. It operates six refineries in the Gulf Coast and Midwest regions of the United States, which refines crude oil and other feedstocks; and distributes refined products through barges, terminals, and trucks." (Business description from Yahoo Finance.)

4 reasons MPC has long-term value at $33 a share:

  1. Marathon is selling near the bottom of its valuation range based on P/E, P/B, P/S and P/CF.
  2. Credit Suisse has an "outperform" rating and a whopping $63 price target on MPC. The median analysts' price target is $44.
  3. The company has identified numerous high payback projects (debottlenecking plants, improving diesel yields, etc) that will improve earnings and are not factored into most analysts' projections.
  4. The company sells for a little over 6 times forward earnings and 16% of annual revenues.

I would probably wait to pick up MPC until later in January, based on Chevron's warning Thursday as well its own small quarterly loss just reported. Refining margins are going to be terrible this reporting season, but will provide a great entry point ($30 to $32) for the patient investor.

Devon Energy (NYSE:DVN), together with its subsidiaries, engages in the acquisition, exploration, development, and production of natural gas and oil in the United States and Canada. It also involves in transporting oil, gas, and natural gas liquids (NGLs); and processing natural gas." (Business description from Yahoo Finance.)

4 reasons DVN is a buy at $63 a share:

  1. After falling over 30% from its highs in 2011, Devon is now selling in the bottom third of its five year valuation range based on P/E, P/S, P/CF and P/B.
  2. It has a five year projected PEG of 1 and is selling at just 5 times operating cash flow.
  3. The company recently divested itself of $10B of assets. It will use that cash to buy back stock, reduce debt, invest in more promising acreage and up its output from its Canadian oil sands projects. It expects annual growth of 20% through 2020 from its oil sands properties.
  4. The median analysts' price target on Devon is $88; S&P has a "buy" rating as well as a $84 price target on DVN.
Source: Two Unloved Energy Stocks For Long-Term Investors