Devon Energy (DVN) has been one of several positions in the long side of my portfolio within the energy sector for the past few months. After doing little over that time frame, the stock seems ready to move, as positive catalysts start to mount (see below), and given the stock's valuation, this could be the beginning of a significant move up.
Three recent positives for DVN:
- Credit Suisse initiated the shares as an "outperform" with a price target of $74 a share.
- The company just successfully closed a $1.4B joint venture investment with Sumitoro.
- Technically the stock is behaving much better after bottoming recently with higher lows and just crossed over its 100-day moving average. (See Chart)
Four additional reasons DVN is a buy at $60 a share:
- The mean analyst price target for the 23 analysts that cover the stock is north of $77 a share.
- It is positively moving the oil and liquids production ratio up. The company should raise oil production by approximately 25% in FY2012. NGL production should be up around 15%, while NG production remains flat.
- The stock is selling near the bottom of its five-year valuation range based on P/S, P/B and P/CF.
- The stock is cheap at just over four times operating cash flow and only 10% above book value.