Two bucks buys you a gallon of gas in many parts of the country these days. But if you think that’s a bargain, check out the deals on energy stocks, which haven’t looked this attractive since the mid 1980s, when Dallas’s J.R. Ewing was scheming to crush his enemies and expand his empire.
Collapsing crude prices have vaporized energy-company profits, pushing down stocks in the sector. But the sell-off may have gone too far. Stocks of large energy companies trade at an average of 1.6 times book value (assets minus liabilities). That’s 33% below the sector’s 30-year average price-to-book-value ratio of 2.4, according to Bank of America Merrill Lynch. (The situation is similar to the mid 1980s, when a supply glut pushed the price of a barrel of oil to less than $10.) If book values return to normal, Merrill Lynch says, energy stocks could climb about 50%.
Granted, oil won’t miraculously jump back to $100 a barrel tomorrow. Kiplinger forecasts that West Texas Intermediate crude will fetch $45 to $55 a barrel in 2016, up only slightly from the current price of about $40. Yet it doesn’t take a leap of faith to see prices gradually recovering. Even if oil doesn’t rebound to $80 a barrel or more, many energy companies can fare well. Take a look at our seven top picks.
Read more at http://www.kiplinger.com/slideshow/investing/T052-S003-energy-stocks-to-buy-while-oil-prices-are-cheap/index.html#D1L0wImuR8M53tpR.99