4 Undervalued Oil Stocks Offering Substantial Yields

Includes: COP, CVX, EPD, PAA
by: Efsinvestment

Staying bearish on oil is quite trendy these days, as Crude oil slipped down around $85, while Brent Crude is hovering around $99. There's a long time to get into the oil sector again because the weakness will not fade away so easily. As long as there's a weakness in the Euro, oil will not have a chance to get on its feet. As far as I see, there's still not a bottom on the horizon. A slowdown in the oil collapse is out of the question for today.

Deutsche Bank analyst Paul Sanke has the same opinion with me here:

I've got to say I'm worried about the euro and what it's going to do to the oil markets. More than 90% of world oil is traded in dollars. And as the euro slides lower the dollar get stronger. That, in turn is negative for oil because it makes oil more expensive for buyers using other currencies.

Almost all of the oil stocks are going straight down for some time, no matter how strong their fundamentals are. The turbulence in the oil market is dragging every oil stock downside. Staying defensive and buying dividend payers is one thing, but there are some trustworthy stocks that should be added to your watch list and grab as soon as the downside momentum stops. I have found four stocks that are currently undervalued, and superior to their peers in most of the technical data and field performance. Looking at their technical indicators, all of these stocks are quite strong but are affected by the European thunderstorm, and can not advance further because of the eurozone pressure. The only thing that keeps them from advancing is the global crisis. As soon as the Euro strengthens; however, they should all go straight up. Here are those four names that should be added to portfolios in an oil rebound.

Stock Name


O-Metrix Score




Chevron Corp.



Enterprise Products Partners



Plains All American Pipeline



(Data from Finviz/Morningstar. You can download the O-Metrix calculator here.)


As a greatly undervalued stock at $51 with a Relative Strength Index of 43.78%, all ConocoPhillips needs is an oil rebound. Because of the pressure by the oil market, the stock lost one third of its value since March 1. With an unbelievable P/E ratio and solid revenue, we have a real bargain here. The oil company offers a safe yield of almost 5%, supported by a relatively low payout ratio.

ConocoPhillips will be easily focusing on its original profession as the Phillips 66 (NYSE:PSX) spin-off is done. The stock is in a quite strong position and plans to do a $5 billion share repurchase around June. Moreover, the oil company will spend $15 billion per year on exploration and production in West& South Texas and North Dakota. However, the price chart is the most reliable source. No matter how hard ConocoPhillips will try, the chart won't show a positive sign as soon as there's a problem called the "Eurozone crisis". With a juicy dividend of 5.09%, ConocoPhillips has an average O-Metrix score of 4.32.


Chevron is in a relatively better position in this list, so you can put this name into the first line. Trading only 14% above its 52-week low, the company has a Relative Strength Index of 35.77%. Beta value is 0.78, while it sells seven times both earnings and forward earnings. Moreover, it pays a 3.73% dividend- what a lovely stock to stick with! The estimated annual EPS growth for the next five years is 5.1%, and it has a B Grade O-Metrix score of 6.21.

Despite underperformance, Chevron keeps pushing its dividend upside. Distributing a $0.90 dividend per share on May 16, the stock increased its quarterly rate by 11%. Revenue, assets and cash flow are truly magnificent. Chevron is poised for a strong rebound as soon as the oil sector lets it. As soon as you see a slowdown in the oil collapse, buy Chevron and collect profits in a bullish economic atmosphere.

Enterprise Products Partners

While Enterprise was going straight up since March, its price chart became the symbol of oil depression. Since that time, the stock is struggling in upsides and downsides. At one point in May, Enterprise made it to as high as $52.67, while it is currently trading at $46.98. Enterprise is one of the strongest candidates in my list, as it offers a 5.28% dividend with a Beta value of 0.61. Despite economic worries, the stock still returned 15% in a year.

Enterprise's net income has increased by 1147% since 2008 to 2011, while dividend growth rate increased by 5.73% in the last five years. Master limited partnerships are one of the favorite choices of income-oriented investors, as they offer higher yields with lower taxes. Return on equity is 19.3%, way above the industry average of 11.9%. Analysts' mean target price of $56.43 implies a 20.1% upside potential in the near term, should the sector rebounds. Most of the analysts have positive opinions on Enterprise such as UBS, Global Hunter Securities, Argus and Wunderlich. Enterprise has an O-Metrix score of 6.07.

As Morningstar states,

Enterprise is a top-tier MLP that is well-suited to weather tough markets and prosper in healthier times.

Plains All American Pipeline

Plains All American has the biggest leapfrogging potential after an oil rebound- with a Relative Strength Index of 43.53%, and a share price only 6.92% lower than its 52-week high. It's only a piece of cake for the company to hit $90 after a relaxation in the markets. One can easily see the pressure of the oil sector in its price chart- as Plains tries skyrocketing, it immediately receives strong upwards resistance.

Insider transactions for the last six months have increased by 21.36%, a result of correct analysis by insiders. Despite heavy market pressure, Plains All American keeps pushing its dividend up in each quarter since July 2010. Revenue and assets seem quite healthy. With a Beta value of 0.49, the stock is one of the least volatile in its industry. Although the price is affected by the oil sector, Plains All American shows consistent growth. Beating earnings estimates in the last four quarters, this stock is even more than profitable if you ask me. Based on Finviz analyst's 5-year annual EPS growth estimate of 7.36%, Plains All American has an O-Metrix score of 4.70.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.