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Jensen: Make Way for the New Oil Majors

Devon Energy (DVN - Get Report) is another independent domestic exploration-and-production concern with a market capitalization north of $20 billion. The company sold some $10 billion worth of overseas assets in 2010 in order to become a pure play onshore North American producer. Devon is a major player in the Permian Basin, and it has increased its exposure to the Canadian oil sands through joint ventures. As with most domestic energy producers, the company is concentrating on increasing oil production, and is tracking to better than 20% growth in oil production this fiscal year.

The company is also scheduled to report earnings Wednesday. It has beat bottom-line expectation each of the last three quarters, and consensus earnings estimates for both 2013 and 2014 have ticked up over the past month. The median price target held by the 25 analysts that cover the stock is $70 a share, approximately 25% above the current price of $56 a share. The stock also has solid technical support at the $52 level. Devon sells at 11x 2014's consensus earnings, and it pays a dividend yield of 1.6%.

Both of these companies are on their way to being major players in the North American energy market. Each stock is selling at a reasonable valuation, given their long-term growth prospects. Should natural gas prices rebound of their low price levels of the last few years, that would be a significant additional catalyst, given both companies' substantial natural gas reserves
At the time of publication, Jensen was long DVN.

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