10 Cheapest Energy Stocks as Oil Spikes

BOSTON (TheStreet) -- With crude oil approaching $90 a barrel, driven by the economic recovery and the weaker dollar, energy companies are racking up profits. Still, there are bargains in the sector. Here are the 10 cheapest oil and gas stocks in the S&P 500 Index, based on forward earnings. The S&P 500 sells for a forward earnings multiple over 14. These energy stocks are cheaper than that. Below, they are ordered from cheap to cheapest.

10. El Paso ( EP) is a natural gas transmission, exploration and production company. Third-quarter profit more than doubled to $142 million, or 19 cents a share, as revenue grew 24%. The operating margin rose from 34% to 44%. El Paso's stock trades at a trailing earnings multiple of 11, a forward earnings multiple of 12, a book value multiple of 2.1 and a cash flow multiple of 5.3, 34%, 22%, 53% and 29% discounts to peer averages. Of analysts following the stock, 10 rate it "buy" and four rank it "hold." A median target of $15.64 suggests 16% upside in 12 months.

Bullish Scenario: BMO Capital Markets expects El Paso's stock to advance 26% to $17.

9. Devon Energy ( DVN) is an oil and natural gas exploration company, focused in onshore North America. It has offshore operations in the Gulf and abroad. Third-quarter net income more than quadrupled to $2.1 billion, or $4.81 a share. Revenue increased 27%. The operating margin rose from 25% to 38%. Devon's stock sells for a trailing earnings multiple of 13, a forward earnings multiple of 12, a book value multiple of 1.7 and a cash flow multiple of 5.6, 18%, 23%, 63% and 24% discounts to industry averages. Roughly 77% of analysts rate it "buy."

Bullish Scenario: JPMorgan predicts that Devon's stock will appreciate 29% to $93.

8. Diamond Offshore Drilling ( DO) is an offshore driller. Third-quarter profit tumbled 45% to $199 million, or $1.43 a share, hurt by continued mobilization out of the Gulf region. Revenue dropped 12%. The operating margin plummeted from 53% to 36%. Diamond's stock trades at a trailing earnings multiple of 10, a forward earnings multiple of 11 and a cash flow multiple of 7.6, 78%, 53% and 55% discounts to peer averages. It's fairly valued based on book value. Of researchers following the stock, seven rate it "buy", 13 rate it "hold and 15 rank it "sell."

Bullish Scenario: Deutsche Bank forecasts that Diamond's stock will climb 26% to $88.

7. Exxon Mobil ( XOM) is the world's largest energy company. Third-quarter net income soared 55% to $7.4 billion, or $1.44 a share, as revenue grew 16% to $85 billion. The operating margin stretched from 9.7% to 12%. Exxon Mobil's stock sells for a trailing earnings multiple of 13, a forward earnings multiple of 11, a book value multiple of 2.5 and a sales multiple of 1.1, 23%, 28%, 45% and 46% discounts to oil and gas industry averages. It's fairly valued based on cash flow. Of analysts covering Exxon, 10 rate its stock "buy", 12 rate it "hold" and one ranks it "sell."

Bullish Scenario: Citigroup offers a price target of $86, implying a one-year gain of 22%.

6. Apache ( APA) is a natural gas and crude oil exploration and production company. Third-quarter net income surged 76% to $778 million and earnings per share rose 63% to $2.12. The operating margin extended from 40% to 47%. Apache's stock trades at a trailing earnings multiple of 13, a forward earnings multiple of 10, a book value multiple of 1.8 and a cash flow multiple of 6.2, 20%, 34%, 59% and 16% discounts to peer averages. Of analysts following Apache, 70% rate its stock "buy." A median target of $120.88 suggests a one-year gain of 11%.

Bullish Scenario: Oppenheimer expects Apache's stock to advance 19% to $130.

5. Valero Energy ( VLO) is an independent petroleum refining and marketing company. Valero swung to a third-quarter profit of $292 million, or 51 cents a share, from a loss of $629 million, or 61 cents, a year earlier. Revenue jumped 20% to $22 billion. The operating margin climbed from negative territory to 2.6%. Valero's stock sells for a forward earnings multiple of 10, a book value multiple of 0.7, a sales multiple of 0.1 and a cash flow multiple of 4.5, 34%, 84%, 93% and 39% discounts to peer averages. Still, just 43% of analysts recommend buying it.

Bullish Scenario: Citigroup predicts that Valero's stock will appreciate 26% to $25.

4. ConocoPhillips ( COP) is an integrated oil and gas company. Its third-quarter profit more than doubled to $3.1 billion, or $2.05 a share, as revenue increased 19% to $44 billion. The operating margin widened from 5.8% to 7.3%. Conoco's stock trades at a trailing earnings multiple of 8.9, a forward earnings multiple of 9.9, a book value multiple of 1.3, a sales multiple of 0.5 and a cash flow multiple of 5.8, 46%, 37%, 71%, 73% and 21% discounts to industry averages. Of analysts following Conoco, 11 rate its stock "buy", eight rate it "hold" and three rank it "sell."

Bullish Scenario: Oppenheimer forecasts that Conoco's stock will climb 13% to $70.

3. Chesapeake Energy ( CHK) is a natural gas producer in the U.S. Its third-quarter profit nearly tripled to $557 million, or 75 cents a share, as revenue increased 42%. The operating margin rose from 29% to 33%. Chesapeake's stock sells for a forward earnings multiple of 9.2, a book value multiple of 1, a sales multiple of 1.6 and a cash flow multiple of 2.9, 42%, 78%, 22% and 60% discounts to peer averages. Of analysts covering Chesapeake, 15 rate its stock "buy", 15 rate it "hold" and one ranks it "sell." A median target of $28.16 implies 25% upside.

Bullish Scenario: RBC Capital Markets offers a price target of $30, suggesting 33% upside.

2. Chevron ( CVX) is the world's second-largest energy company. Third-quarter profit declined 1.7% to $3.8 billion, or $1.87 a share, as revenue gained 7.6%. The operating margin rose from 11% to 12%. Chevron's stock trades at a trailing earnings multiple of 10, a forward earnings multiple of 8.9, a book value multiple of 1.7, a sales multiple of 0.9 and a cash flow multiple of 5.7, 38%, 44%, 63%, 54% and 22% discounts to peer averages. Of researchers following Chevron, 19 rate its stock "buy" and six rank it "hold." A median target of $95.07 suggests a gain of 11%.

Bullish Scenario: Barclays expects Chevron's stock to advance 29% to $110.

1. Marathon Oil ( MRO) is an integrated oil and gas company. Its third-quarter profit surged 69% to $696 million, or 98 cents a share, as revenue expanded 30% to $17 billion. The operating margin inched up from 6.9% to 8%. Chevron's stock sells for a trailing earnings multiple of 12, a forward earnings multiple of 8.2, a book value multiple of 1, a sales multiple of 0.4 and a cash flow multiple of 4.5, 29%, 48%, 77%, 81% and 39% discounts to industry averages. Of analysts following Marathon, 11 rate its stock "buy", 11 rate it "hold" and two rank the shares "sell."

Bullish Scenario: Credit Suisse predicts that Marathon's stock will appreciate 21% to $41.

-- Written by Jake Lynch in Boston.

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