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7 Undervalued Oil and Gas Stocks Ripe for Gains

7. Kinder Morgan Energy Partners (KMP)

Company profile: Kinder Morgan, with a market value of $26 billion, is one of the nation's largest pipeline master limited partnerships after its $38 billion acquisition of pipeline giant El Paso Corp. in May.

Dividend Yield: 6.34%

Investor takeaway: Its shares are down 6.4% this year, but have a three-year, average annual return of 21.5%. Analysts give its shares three "buy" ratings, 11 "holds," and one "sell," according to a survey of analysts by S&P. But S&P has it rated "strong buy" with a $99 price target, which is a 32% premium to the current price. It says that the El Paso deal will be a long-term positive for growth and cash flow, as does Morningstar. Kinder Morgan has a forward P/E of 25.1.

6. Ultra Petroleum (UPL)

Company profile: Ultra, with a market value of $3 billion, is an independent exploration and production company with natural gas reserves in Wyoming and Pennsylvania.

Investor takeaway: Its shares are down 24% this year, but up 20% in the past month. Analysts give its shares five "buy" ratings, one "buy/hold," and 19 "holds," according to a survey of analysts by S&P. Morningstar analyst Jason Stevens is upbeat on the company, giving it a five-star rating, his firm's highest, and says: "The firm's sizable inventory and industry-leading cost structure should support a decade or more of profitable growth, even in the face of continued low gas prices. A takeout offer from one of the majors or a larger independent could also help fast-track value realization."

But S&P has it rated "hold," saying that "oversupplied gas markets have led UPL to sharply reduce activity and operating targets in 2012." The company has a forward P/E of 23.5.

5. Suncor Energy (SU - Get Report)

Company profile: Suncor Energy, with a market value of $43 billion, is an integrated oil and gas company and one of the largest energy companies in Canada after its August 2009 merger with Petro-Canada. Its production is focused on Alberta's Athabasca oil sands, with complementary operations in refining and marketing. Its retail service station network operates in Canada under the Petro-Canada brand.

Dividend Yield: 1.84%

Investor takeaway: Its shares are down 27% this year, including 15.5% in the past three months. Analysts' ratings are bullish as they give its shares six "buy" ratings, 11 "buy/holds," and four "holds," according to a survey of analysts by S&P. Analysts' consensus estimate is for earnings of $3.32 per share this year and growth of 11% to $3.70 next year. S&P has it rated "hold," but has a 12-month $38 price target on the shares, which is a 38% premium to the current price. It has a forward P/E of 7.2.

4. Devon Energy (DVN - Get Report)

Company profile: Devon, with a market value of $23 billion, is a diversified exploration and production company (oil and, increasingly, natural gas). About 60% of its production volume comes from natural gas, which could stifle profit growth if such end market prices remain low long-term due to a surplus.

Dividend Yield: 1.41%

Investor takeaway: Its shares are down 7.7% this year and 20% over the past three months. Analysts give its shares 12 "buy" ratings, nine "buy/holds," and eight "holds," according to a survey of analysts by S&P. S&P rates its shares "buy," with a 44% premium on the current price to S&P's 12-month target price.

Morningstar gives it its highest rating of five stars and its analyst Mark Hanson says that, "since late 2009, Devon has closed on almost $10 billion in asset sales as part of its shift toward U.S. and Canadian onshore resource plays. The result is a broad portfolio of growth-oriented oil and gas assets and a rock-solid balance sheet to aggressively develop these resources over the next several years."

The company has a forward P/E of 7.8.
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APA $54.67 7.80%
DVN $31.29 -0.06%
EPD $25.62 0.35%
KMP $102.03 1.98%
SU $25.49 -4.00%


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