Drilling for Energy Stocks to Buy

NEW YORK ( TheStreet) -- Nymex crude oil peaked at $100.42 per barrel on Sept. 14, which was the day after the FOMC announced QE3. Oil subsequently declined 15.9% to $84.05, into Nov. 7. On Dec. 12, the FOMC announced QE4. Since then, oil has moved sideways to up.

Analysis of Nymex Crude Oil ($87.72): On Dec. 14, I wrote FOMC QE4 Foolishness Pushes Stocks to Cliff Edge . In this post I projected that crude oil had upside potential to its 200-day simple moving average at $92.62. A daily close above the 50-day SMA at $87.63 would enhance this upside potential. A close this week above the five-week modified moving average at $87.79 shifts the weekly chart profile to positive. The chart support is the 200-week SMA at $84.27.

Fundamentally, ValuEngine shows the oils-energy sector 5.2% undervalued, with the oil & gas exploration & production industry 10.0% undervalued; the oil & gas field services industry 2.0% undervalued; oil & gas international integrated industry 10.5% undervalued; the oil & gas drilling industry 3.6% undervalued; the oil & gas machinery & equipment industry 5.1% overvalued; and the oil refining and marketing industry 7.2% overvalued.

With the technicals improving for Nymex crude oil and with the oils-energy sector the most undervalued of the 16 sectors covered by ValuEngine, it's time for investors to increase allocations to this sector.

Back on Oct. 2, I wrote Will the Oils-Energy Sector Catch QE Fatigue? . Here are two stocks investors should consider adding to their investment portfolios:

Apache ( APA) ($77.02 on Dec. 14 vs $86.41 on Oct. 2) is near its year-to-date low at $74.50, set on Nov. 16. The daily chart is positive, with the 50-day and 200-day SMAs at $80.43 and $87.41. The weekly chart shows oversold momentum and a weekly close this week above the five-week MMA at $78.73 would result in a positive weekly chart profile.

National Oilwell Varco ( NOV) ($64.87 on Dec. 14 vs. $80.55 on Oct. 2) has declined about 25% since setting a multi-year high at $89.95 on Sept. 18. NOV has an oversold daily chart and an oversold weekly chart, with the five-week MMA at $69.72. My monthly value level is $64.63, with upside to the 50-day and 200-day SMAs at $72.98 and $73.83.

When drilling for energy stocks using www.ValuEngine.com I found 20 oils-energy stocks that have "Four-Engine" buy ratings.

Reading the Table

OV / UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage, according to ValuEngine.

Note that six of 20 stocks are overvalued, led by Marathon Oil ( MRO) ($30.82), overvalued by 25.1%. Tesoro Corp ( TSO) ($44.66), overvalued by 10.9%, set a multi-year high at $45.41 on Monday.

Fourteen of the 20 stocks are undervalued by 1.2% to 30.8%, with Hess Corp ( HES) ($51.38), undervalued by 30.1% and Nabors Industries ( NBR) ($13.71) undervalued by 30.8%.

VE Rating: All 20 stocks have a "4-Engine" rating, which is a Buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Seven of 20 stocks have declined over the last 12 months, led by NBR's 16.5%. Occidental Petroleum ( OXY) ($76.17) declined by 11.6% and Apache Corp ( APA) ($77.02) declined by 11.5%.

Thirteen of 20 stocks rallied over the last 12 months, led by TSO, with a whopping gain of 101.3%. Another big gainer was Valero Energy ( VLO) ($33.37), with a gain of 68.0%. VLO is approaching a new multi-year high.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

With all twenty stocks buy-rated, their forecast one-year returns are between 5.0% and 12.0%, with TSO and VLO projected to rally by 11.6% and 11.3%, respectively.

Twelve month trailing P/E ratios: Note that nine of 20 have single-digit P/E ratios, including TSO and VLO. Another 10 stocks have reasonable P/E ratios, between 10.7 and 16.3. Only Anadarko Petroleum ( APC) ($74.59) has an elevated 21.7 P/E ratio.

Value Level: This is the price at which to enter a GTC Limit Order to buy on weakness. The letters mean; W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: This is the price at which to enter a GTC Limit Order to sell on strength.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.