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What are we looking for?

Energy stocks have gotten buried along with crude oil prices over the past year. The energy sector remains the worst performing U.S. sector, with the Energy Select Sector SPDR Fund (XLE) returning a dismal 1.35 per cent year to date.

The energy sector has a current price-to-earnings ratio of 15, compared with a P/E of 19.2 for the S&P 500. Our research desk decided to drill down and search for value in a sector that has yet to catch up to the broad market.

The screen

We will be using Trading Central Strategy Builder to search for U.S.-listed energy stocks that are fairly valued against their peers in anticipation of a rebound in the depressed energy sector.

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We begin by setting a minimum market capitalization threshold of US$1-billion to focus on larger, more established energy companies in our screen.

Next, we screen for stocks that have a price-to-earnings ratio less than the S&P 500 average of 19.2, in order to find undervalued companies.

Finally, in order to focus on positive and consistent growth prospects, our screen will consider companies with a five-year historical growth rate in earnings per share of 10 per cent or more.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities.

What we found

Interestingly, in a search of U.S.-listed names, four of the 10 companies that surfaced are Calgary-based and also trade on the TSX, including TC Energy Corp., Pembina Pipeline Corp., Encana Corp. and Enerplus Corp. Topping our list is TC Energy, an energy infrastructure company with pipeline and power generation assets in Canada, the United States and Mexico. TC has the largest market cap on our list at US$47.9-billion. Having returned 24.3 per cent in the past year and 42 per cent year to date, it is also the best performing stock on our list. The company has the second-highest dividend yield in the screen at 4.5 per cent.

Pembina Pipeline, an integrated midstream energy infrastructure company in Western Canada and North Dakota, has the highest yield on our list at 5.1 per cent. The current P/E sits at 15.4.

Enerplus produces and develops crude oil and natural gas assets in North America. The company has the highest EPS growth rate over the past five years at an impressive 44.8 per cent. Its P/E is the second-lowest on our list, after Encana, at 4.8.

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Among the U.S.-based firms, Dallas-based HollyFrontier Corp. owns and operates refineries serving the Rockies, midcontinent and the U.S. Southwest, with a total crude oil throughput capacity of 510,000 barrels a day. Its stock just recently broke above a one-year downtrend. With a P/E well below the industry average of 15, its current share price remains at an attractive level, even with the recent upside breakout.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Select U.S.-listed energy stocks

RankCompanyTickerMkt. Cap. (US$ Bil.) P/E5Y Hist. EPS Grth. Rate (%)Div. Yld. (%)YTD Price Perf. (%)1Y Price Perf. (%)Recent Price (US$)
1TC Energy Corp.TRP-N47.914.910.14.542.024.351.39
2Pembina Pipeline Corp.PBA-N18.115.415.35.119.00.935.41
3Phillips 66 Co.PSX-N45.28.814.43.617.0-14.3102.71
4Delek US Holdings Inc.DK-N2.645.415.03.45.8-15.535.13
5HollyFrontier Corp.HFC-N8.69.711.22.51.9-24.152.26
6Encana Corp.ECA-N5.73.628.21.8-27.5-66.84.16
7Enerplus Corp.ERF-N1.54.844.81.4-16.1-46.96.46
8Cabot Oil & Gas Corp.COG-N7.49.113.42.0-20.9-27.517.34
9Diamondback EnergyFANG-Q13.112.744.30.9-12.8-40.281.55
10Parsley Energy Inc.PE-N5.117.242.00.8-0.9-48.316.13

Source: Trading Central

Gary Christie is head of North American research at Trading Central.

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