There are a myriad of energy companies out there vying for your affection and investment dollars. Not all are worth a second thought, and far fewer are worth your hard-earned money. One that just might be worth both is Oklahoma City based Devon Energy Corporation (NYSE:DVN) . With a focus on building the per share value of the company, here are five reasons why you should love this stock.
Its dirt cheap
No matter how you slice it, Devon is cheap. It’s trading for half its net asset value, and sells for just over one times book value and about seven times cash flow. While it might appear expensive at more than 35 times earnings, don’t let that number fool you. This is a misunderstood company that’s trading at a deep value.
It’s getting oily
Part of the misunderstanding comes from the fact that many see Devon as a natural gas company. There is no denying this truth, especially when 63% of the company’s production is natural gas. Devon also ranks as the nation’s fourth largest producer of natural gas behind Exxon Mobil Corporation (NYSE:XOM), Chesapeake Energy Corporation (NYSE:CHK) and Anadarko Petroleum Corporation (NYSE:APC). So, yes, Devon is a natural gas company.
However, few recognize Devon as the top ten U.S. liquids producer that it has become. In particular, its oil production is growing fast as its operations in the oil sands of Canada and the Permian Basin are expected to drive 18% to 20% annual oil production growth.That growth outpaces more liquid-minded rivals ExxonMobil and Anadarko, and the market hasn’t even noticed.
The reason? Both ExxonMobil and Anadarko have vast international and deepwater operations, whereas Devon sold off everything but its North American onshore assets.These high-impact international and deepwater operations produce oil at the global benchmark Brent prices, while Devon’s production is priced at the discounted West Texas Intermediate prices, or the even more discounted Canadian crude. As more pipeline infrastructure comes online in North America, these discounts should abate, which should relieve some of the pressure on Devon’s stock.
Canadian oil sands play
As I just mentioned, oil coming out of Canada is currently priced at a major discount. However, help is on the way, as additional infrastructure is coming online, along with incremental refining demand. This near-term catalyst should begin to narrow the discount as early as the middle of this year. Longer term, Devon has several world-class projects in the works, including additional Jackfish facilities, and its Pike project. As these continue to come online, it will drive Devon’s oil production for decades to come. Devon is a great way to get the growth from the oil sands into your portfolio.
