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After the recent pullback in energy stocks, Devon Energy (DVN) and Apache Corp. (APA) are both barely up over the last three years. As you can see on the chart below, Apache has slightly outperformed Devon. Apache's total return, including dividends, was 7.42% and Devon's was 3.09%. Devon and Apache both significantly trailed the S&P 500 SPDR (SPY), which had a 46.6% total return during the period.

(click to enlarge)


Some key valuation metrics for each company are listed immediately below.

Market Cap32.8 B23.5 B
2013 P/E7.410.8
Dividend Yield0.8%1.4%
Price/Sales (TTM)1.942.02
Price/Book (MRQ)1.171.09
Operating Profit Margin44.15%36.6%

The production mix for each company during 2012 Q1 was as follows:

Production Mix (Q1 2012)ApacheDevon
Natural Gas51%63%

The chart below shows the geographic origin of each company's production in 2012 Q1.

Production Origination (Q1 2012)ApacheDevon
United States37%72%
North Sea10%0%

At the end of the first quarter this year, Devon had $7.11 billion in cash and short-term investments while Apache had only $384 million. Despite Apache's cheaper valuation and higher oil production component, I recommend Devon based on its strong balance sheet and higher yield. My balance sheet and yield preference is due to the uncertainty in the broader market and the possibility of a prolonged period of weak demand for oil and gas. Devon's cash position will enable it to make opportunistic acquisitions of other entities and property at depressed prices. I also favor Devon's North American production profile over Apache's international one with commensurate geopolitical risk, most significant of which is uncertainty in Egypt (accounts for one-fifth of Apache's production).

Disclosure: I am long DVN.