These companies may offer good value based on Benjamin Graham’s criteria
Summary
- Exxon Mobil, EOG, Diamondback Energy
FANG
EQT
While the energy sector is up again this year after a blowout 2022, oil prices fell further on Friday on the back of macroeconomic-related demand fears as well as the Russian government lifting part of its diesel export ban.
Brent crude futures declined 0.56% to $83.60 on Friday. Futures for West Texas Intermediate crude retreated 0.67% to $81.76.
Due to these developments, investors may be interested in potential opportunities in energy companies that qualify for Benjamin Graham’s Lost Formula screen, a Premium GuruFocus feature.
Prior to his death in 1976, the renowned investor and author of “Security Analysis” and “The Intelligent Investor” developed a refined formula that screened for companies with a price-earnings ratio of less than 10 and an equity-to-asset ratio of at least 0.5. The formula got its name from the fact he was unable to publish it before his passing; therefore, it was lost from public knowledge for a time. Since Graham also prioritized a minimum interest coverage of 5 with the companies he invested in, that element was included in the criteria as well.
A backtest of the strategy from 1926 to 1976 showed it would have outperformed the Dow benchmark by approximately twice as much.
The screener found health care companies that met the criteria as of Oct. 6 included Exxon Mobil Corp. (XOM, Financial), EOG Resources Inc. (EOG, Financial), Diamondback Energy Inc. (FANG, Financial), Coterra Energy Inc. (CTRA, Financial) and EQT Corp. (EQT, Financial).
Exxon Mobil
Exxon Mobil (XOM, Financial) has a $421.89 billion market cap; its shares were trading around $105.83 on Friday with a price-earnings ratio of 8.47, a price-book ratio of 2.13, a price-sales ratio of 1.20 and an equity-to-asset ratio of 0.55.
Founded in 1999, the Irving, Texas-based company explores for, produces and refines oil and natural gas. It has operations around the world.
The GF Value Line
VALU
At 82 out of 100, the GF Score indicates the company has good outperformance potential, driven by high ratings for profitability, financial strength, momentum and growth. The value rank, however, is low.
Of the gurus invested in Exxon Mobil, First Eagle Investment (Trades, Portfolio) has the largest stake with 0.33% of its outstanding shares. Ken Fisher (Trades, Portfolio) and the T Rowe Price Equity Income Fund (Trades, Portfolio) also have notable holdings.
EOG Resources
EOG Resources (EOG, Financial) has a market cap of $69.85 billion; its shares traded around $119.97 on Friday with a price-earnings ratio of 8.08, a price-book ratio of 2.66, a price-sales ratio of 2.78 and an equity-to-asset ratio of 0.63.
The oil and gas producer headquartered in Houston has operations in the Permian Basin of West Texas, along with the Eagle Ford and Bakken plays.
According to the GF Value Line, the stock is fairly valued currently.
The company also has good outperformance potential with on a GF Score of 88, receiving high ratings for four of the criteria and a low value rank.
With a 0.57% stake, Bill Nygren (Trades, Portfolio) is EOG’s largest guru shareholder. The stock is also being held by PRIMECAP Management (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio) and T. Rowe Price, among others.
Diamondback Energy
Diamondback Energy (FANG, Financial) has a $26.90 billion market cap; its shares were trading around $150.42 on Friday with a price-earnings ratio of 7.81, a price-book ratio of 1.73, a price-sales ratio of 3.33 and an equity-to-asset ratio of 0.56.
The Midland, Texas-based company, which was established in 2007, produces oil and gas products in the Permian Basin of West Texas.
Based on the GF Value Line, the stock appears to be modestly overvalued currently.
The GF Score of 74 implies the company is expected to have average performance going forward. Although the ratings for profitability, growth and momentum are high, it has moderate financial strength and a low value rank.
Yacktman Asset Management (Trades, Portfolio) has the largest position in Diamondback with 0.81% of its outstanding shares. Other guru investors include Steven Cohen (Trades, Portfolio), Fisher, Arnold Van Den Berg (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Renaissance Technologies and Jefferies Group (Trades, Portfolio).
Coterra Energy
Coterra Energy
CTRA
The oil and gas producer headquartered in Houston has operations in the Permian and Anadarko Basins as well as the Marcellus Shale play.
The GF Value Line suggests the stock is significantly undervalued currently.
Supported by solid ratings across the board, the GF Score of 93 means the company has high outperformance potential.
Holding a 0.66% stake, Jim Simons (Trades, Portfolio)’ Renaissance Technologies has the largest stake in Coterra. Diamond Hill Capital (Trades, Portfolio), PRIMECAP and Cohen also have large positions in the stock.
EQT
EQT has a $17.63 billion market cap; its shares were trading around $42.82 on Friday with a price-earnings ratio of 4.82, a price-book ratio of 1.29, a price-sales ratio of 2 and an equity-to-asset ratio of 0.56.
The Pittsburgh-based company produces natural gas and has pipeline transportation operations.
According to the GF Value Line, the stock is significantly overvalued currently.
The GF Score of 70 indicates the company has poor performance potential. While it received high ratings for profitability and momentum, the growth and financial strength ranks are more moderate and value is low.
David Tepper (Trades, Portfolio) is EQT’s largest guru shareholder with a 0.57% stake. Simons’ firm, T. Rowe Price, Cohen, David Nierenberg (Trades, Portfolio) and several other gurus also own the stock.
Other potential opportunities
Additional stocks that made the screener included Marathon Oil
MRO
CHK
DINO
RRC
AR
AR
Disclosures
I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours.
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