Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Apache Corporation (APA), Devon Energy Corp (DVN), Chesapeake Energy Corporation (CHK): Three Opportunistic Energy Stocks for Your Portfolio

Apache Corporation (NYSE:APA)In Morningstar’s recently-released list of 10 high-conviction stocks, there are two energy companies which have high star ratings. They are Apache Corporation (NYSE:APA) and Devon Energy Corp (NYSE:DVN). Since the beginning of the year, both Apache and Devon have increased 7.5% and 15.7%, respectively, lagging the S&P 500’s return of nearly 17.2%. Let’s take a closer look to determine whether or not we should invest in those two energy companies at their current trading prices.

Apache – strong balance sheet and cheap valuation

At the end of 2012, Apache Corporation (NYSE:APA) had total proved reserves of around 2.9 billion BOE, and around 28% of its total proved reserves were in the Permian Basin and 19% was in Canada. In the first quarter of 2013, Apache Corporation (NYSE:APA)’s revenue experienced a decline of more than 10% to $4 billion while net income came in at $698 million, or $1.76 per share, lower than net income of $778 million, or $2 per share in the first quarter last year. In the first quarter, the company managed to increase global production to nearly 782,000 BOE per day, mainly attributable to a 45% rise in North American onshore liquids output.

What makes Apache Corporation (NYSE:APA) interesting is the plan to divest as much as $4 billion in assets by the end of 2013. The company would use $2 billion of proceeds to pay down the debt and the remaining $2 billion to buy back its shares. The company is focusing on a much stronger balance sheet although it already has a conservative capital structure. As of March 2013, it had nearly $32 billion in equity, $248 million in cash, and nearly $12.5 billion in total debt. At $84.40 per share, Apache Corporation (NYSE:APA) is worth nearly $33 billion on the market. The market values the company quite cheaply at only 3.72 times EV/EBITDA.

Devon – undervalued by the market

Devon Energy Corp (NYSE:DVN) focuses its operations in North American onshore, with total proved reserves of more than 2.96 billion BOE at the end of 2012. Most of its proved reserves, more than 1 billion BOE, or 35.7% of the total proved reserves, were in Barnett Shale in the U.S. The Canadian Oil Sands ranked second, with 528 million BOE in the total proved reserves. What I like about the company is its aggressive divestment of the international and deepwater assets. Fool contributor Daniel Miller wrote that the company has divested around $10 billion in assets, and its recent focus on U.S. and Canadian assets hasn’t been recognized by the market.

Like Apache, Devon Energy Corp (NYSE:DVN) has quite a strong balance sheet. As of March 2013, it had more than $19.7 billion in total stockholders’ equity, $6.5 billion in cash and short-term investments, and $12.2 billion in both long and short-term debt. Devon Energy Corp (NYSE:DVN) is trading at around $60.20 per share with a total market cap of nearly $24.5 billion. The market values Devon Energy Corp (NYSE:DVN) at around 6.53 times EV/EBITDA.