Tags: Energy | Stocks | Good | Value

Energy Stocks Are Generating Good Value

By David Skarica   |   Thursday, 12 Apr 2012 01:55 PM

One thing that is interesting about the last year or so in markets is that while commodities have performed pretty well, with oil jumping above $103 a barrel and gold above $1,600 an ounce, such commodity-related stocks haven't performed well.

Maybe investors just don’t believe the high prices that commodities have hit and are pricing the stocks for lower levels.

Oil and gas stocks, as gauged by the Philadelphia Oil and Gas Index, are down roughly 3 percent year to date and about 15 percent year over year.

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In addition, since the bottom in 2008, oil stocks have really underperformed the actual crude commodity.

This has lead to a valuation contraction and some very cheap companies. Most large-cap oil companies are trading in the high single-digits or low double-digits in terms of price-earnings ratios (P/Es). In addition, most yield between 2.5 percent and 4.50 percent on dividends, which is more than a U.S. 10-year bond.

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I tend to believe in the view of George Soros: "It's always better to assume the market is wrong."

I think that the market is wrong in terms of how it views these oil and gas stocks. Rather than pricing them for $80 oil, it should be pricing them for $95 to $100 oil minimum. Therefore, they look like good value to me.

About the Author: David Skarica David Skarica is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes the Gold Stock Adviser. Discover more by Clicking Here Now.

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