The stock rally we've seen over the last six months has lifted
all boats. It hasn't been a stock pickers market. It's the type of
market where no matter what you've bought you've made money.
If you're a value investor, you're suddenly wondering, "where's the
good value stocks?" Many of the previously "cheap" stocks aren't so
cheap anymore. Many sectors have had big run-ups.
But if you dig deep, value stocks are still out there.
Not only that, there are value stocks that are expected to grow
earnings by the double digits this year. That's the magic
combination for investors: value AND growth.
How Do We Find Stocks With The Magic Combination?
In a stock market where the rally is lifting all boats, we have to
look in sectors that remain out of favor. Yes, there still ARE some
areas that haven't performed quite as well as others.
One area investors have turned their backs on is energy.
Outside of the refiners, which have soared over the past year due
to record high crack spreads which have pushed up earnings and
shareholder payouts, much of the rest of the energy sector has been
left on the sidelines. Some companies, like the integrated big oil
companies, for instance, are lagging the overall markets. Many of
the exploration companies have also yet to break out. Ditto with
the oil services and equipment companies.
But as Wall Street shuns energy, that creates an opportunity for
investors. A lot of energy companies are trading with low P/Es.
Additionally, there are a select few that are also expected to grow
earnings by the double digits in 2013. These companies are being
lumped in with all the other energy companies in the "bad"
Using the Zacks Rank, I also looked for energy plays that had the
magic combination of value AND growth. That means stocks with
forward P/Es under 10 and double digit earnings growth expected in
2013. They DO exist.
3 Energy Stocks With The Magic Combination
Marathon Petroleum (
Marathon Petroleum was spun off from Marathon Oil in July 2011. It
owns 7 refineries in the Gulf Coast and Midwest and distributes
Most of the refining stocks rallied big in 2012 and have continued
that rally again into 2013. But the analysts still like Marathon
mainly due to its position with both Midwest and Gulf Coast
refineries. It's going to be able to play the North American crude
dynamics, instead of the WTI crude spread that many other refiners
have been tied to. It has been cashing in on discounted heavy
The Magic Combination
Forward P/E = 8
2013 Expected Earnings Growth = 11.2%
PEG ratio = 1.1
Zacks Rank #1 (Strong Buy)
Transglobe Energy Corporation (
Transglobe Energy is a Canadian exploration and production company
with interesting ins Egypt and Yemen. It has 9 international blocks
with active exploration and development drilling already underway.
In Egypt it has a 50-100% operated and non-operated interest in 5
concessions in Egypt. In Yemen, it has a 13-25% working interest in
For exploration companies, it's all about getting it out of the
ground. Production grew by 44% in 2012 to 17,496 barrels of oil per
day ("Bopd") from 12,132 Bopd.
Transglobe is bullish on 2013 with production expected to rise
another 28% to a range of 21,000 to 24,000 Bopd.
The Magic Combination
Forward P/E = 6.4
2013 Expected Earnings Growth = 20.5%
PEG ratio = 0.2
Zacks Rank #2 (Buy)
Ensco plc (
Ensco operates 76 offshore rigs mainly in the Gulf of Mexico and
the North Sea. Headquartered in London, its fleet includes 7
ultra-deepwater drillships, 13 semisubmersibles, 7 moored
semisubmersibles and 49 jackups.
Offshore drilling has been hot. Ensco said it received 60 inquiries
for jackups and floaters in the fourth quarter but it couldn't bid
on 25% of the business due to lack of rig availability.
Analysts, and the company, are optimistic about 2013. Ensco just
raised its dividend by 33% to $0.50 per quarter. That's a yield of
The Magic Combination
Forward P/E = 8.5
2013 Expected Earnings Growth = 24%
PEG ratio = 0.3
Zacks Rank #3 (Hold)
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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She
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ENSCO PLC (ESV): Free Stock Analysis Report
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TRANSGLOBE ENGY (TGA): Free Stock Analysis
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