Last week’s Five for Friday highlighted large-cap energy companies with “a high potential for returning capital to investors through share buybacks.” Since many governments are incentivizing renewable energy sources and penalizing carbon-based energies, traditional carbon-based energy companies may likely divert profits from exploration toward shareholders.
This week we take the analysis another step. We seek energy companies with excess cash and trading at cheap valuations. With the possibility of a recession looming, companies with a margin of cushion, i.e., low valuations, should hold up better than stocks with high valuations. The selected companies may elect to buy back stock or increase dividends to support their stocks in a weaker market.
We relaxed the market cap from >$50 billion to >$10 billion to include more stocks. A good number of stocks remained after our valuation additions and lower market cap threshold. As a result, we chose the five with the lowest Forward Price to Earnings ratio. SHEL is the only stock in both screens.
Screening Criteria
- Market Capitalization >$10B
- Price/Free Cash Flow <10
- Price/Sales <1.5
- LT Debt/Equity <0.5
Company Summaries
Cenovus Energy (CVE)
Suncor Energy (SU)
Imperial Oil (IMO)
Shell PLC (SHL)
Valero Energy (VLO)
Disclosure
This report is not a recommendation to buy or sell the named securities. We intend to elicit ideas about stocks meeting specific criteria and investment themes. Please read our disclosures carefully and do your own research before investing.
Michael Lebowitz, CFA is an Investment Analyst and Portfolio Manager for RIA Advisors. specializing in macroeconomic research, valuations, asset allocation, and risk management. RIA Contributing Editor and Research Director. CFA is an Investment Analyst and Portfolio Manager; Co-founder of 720 Global Research.
Follow Michael on Twitter or go to 720global.com for more research and analysis.
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