What are we screening for?
Undervalued U.S. large-cap energy stocks.
The Screen
North American equity markets were propelled higher on Monday following the announcement of a 90-day pause in the U.S.-China trade war. The S&P 500 index rose by 3.26 per cent, led by the automobile, consumer discretionary, and transportation industry groups, while the VIX, a measure of market volatility, fell below 20 for the first time since March 28.
This bullish sentiment could help sectors that have been lagging the major benchmark, however headwinds may continue for the energy sector, with concerns that OPEC+, a group of 12 countries that represent approximately 40 per cent of global oil production, could continue to increase production output, driving down prices. The group increased output by more than previously expected in April and have announced production in May would rise by 411,000 barrels per day. If demand fails to keep pace, oil markets could remain oversupplied for the remainder of 2025.
Aramco, a majority Saudi state-owned oil company, expects oil demand to remain resilient and grow if the U.S. and China can resolve their tariff dispute, which could provide a boost to energy stocks following Monday’s tariff announcement. U.S. President Trump is visiting the Gulf States on Tuesday, which could be another catalyst for energy markets to advance. Today, we screen for U.S.-listed energy companies that are undervalued and poised for future growth.
- First, we screen for U.S.-listed energy companies with a market capitalization greater than US$1-billion.
- Next, we screen for companies with strong forecast future growth rates. We use the Starmine Intrinsic Valuation Model to screen for companies with a price-to-intrinsic-valuation score of 95 or greater. The Intrinsic Valuation Model is a percentile ranking of stocks based on a dividend discount model valuation, with 100 representing the highest ranking. The dividend discount model is a valuation method based on the theory that a stock is worth the sum of all future dividend payments.
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What We Found
The screen, ranked by StarMine Price-to-Intrinsic Value Rank, produced nine companies.
Civitas Resources Inc., CIVI-N which scored 100 in the Starmine Price-to-Intrinsic Value Rank, is an independent exploration and production company with assets in the D-J Basin in Colorado, and the Permian Basin in Texas and New Mexico. Civitas’s stock is down more than 37 per-cent year-to-date, and despite this pressure, management is confident in its ability to hit full-year 2025 net debt targets, and has maintained production and capex guidance with a base case oil price in the mid-to-low US$50s. The company delivered US$786-million in adjusted EBITDAX (earnings before interest, taxes, depreciation, amortization, and exploration) in the first quarter, and is expecting volume growth of 4 per cent in the second quarter, while lowering cash operating costs by 7 per cent. Should oil prices remain depressed, Civitas has increased its hedging to nearly 50 per cent of 2025 oil production, providing a revenue floor of US$68 a barrel.
Nov Inc., NOV-N which scored 95 in the Starmine Price-to-Intrinsic Value Rank, was the only oil and gas equipment and services company to make the screen. Houston, Tex.-based Nov is an independent provider of equipment and technology to the oil and gas industry, and supports the industry’s drilling, completion, and production needs. Nov delivered strong first-quarter results that were above analysts’ consensus, however the stock faced headwinds owing to the macro uncertainty related to tariffs, even though its businesses have limited exposure to them. During the recent earnings call, management provided second-quarter guidance of adjusted EBITDA of US$250-million to US$280-million, with revenue expected to fall by 1-4 per cent. The onshore segment in the U.S. is expected to face challenges if oil prices remain at current levels, and Nov is focused on growing its subsea business, mainly in deepwater and international unconventional markets.
Investors are advised to do their own research before trading in any of the securities shown.
Stephen Donovan, MBA, is a Sales Specialist covering commodity markets at LSEG.