The 3 Most Undervalued Oil Stocks to Buy in September 2023

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Ian Bezek

Sat, Sep 16, 2023, 12:00 PM 3 min read

After bottoming out around $65/barrel in May, the price of crude oil has topped $90/barrel. New projections suggest that oil demand will outstrip supply for at least the rest of the year. And the Biden Administration is attempting to refill the strategic petroleum reserve, which would add further upside to the crude complex.

All this creates an opportunistic time to be looking at oil stocks to buy. With the price of crude oil approaching $100 per barrel, these three leading oil stocks are set to cash in. Make sure they’re at the top of your watchlist.

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Valero Energy (VLO)

A daytime picture of a Valero (VLO) gas station located in San Francisco bay and clear blue sky in the background.

Source: Sundry Photography / Shutterstock.com

Valero Energy (NYSE:VLO) is America’s largest independent refining company. Traditionally, refining was a challenging industry prone to a cyclical boom or bust pattern.

However, underinvestment in the refining sector has caused favorable pricing dynamics for the sector. In addition, the boom in North American fracking has led refiners to have access to cheaper domestic crudes instead of imported oil.

All this adds up to a Valero business today that is far more profitable than investors may realize. Analysts expect the company to earn more than $25 per share this year, which places it at less than six times forward earnings.

Traders clearly fear that Valero will return to its prior volatile ways. But there is reason to think that the firm’s competitive position has improved. And the latest push higher in energy prices will only help Valero’s outlook going into 2024.

Canadian Natural Resources (CNQ)

Source: Pavel Kapysh / Shutterstock.com

Canadian Natural Resources (NYSE:CNQ) is a large oil and gas production company focused on the Canadian province of Alberta.

The firm is well-known for its leading position in oil sands, a unique resource whereby oil is trapped in a sandstone structure. Due to their distinctive structure, oil sands have a much longer lifespan than a traditional oil well or fracking facility.

Thus, Canadian Natural’s properties should produce at a consistent rate well into the 2030s and 2040s, giving it access to a long-lived oil resource. In a world of increasing difficulties for new oil project approval, CNQ’s existing properties take on extra importance.

Oil sands are also low-cost deposits. Once the upfront construction expenses are paid, operating expenditures are modest. Hence, Canadian Natural is earning huge profit margins on its oil production today which will only improve as oil prices rise once again.

Even at fresh 52-week highs now, CNQ shares trade at just 12 times forward earnings. This gives the firm enough cash flows to pay a 3.9% dividend yield, buy back a chunk of stock, and pay down its debt all at the same time.

TC Energy (TRP)

The logo for TC Energy out front of company headquarters in Canada.

Source: Brett Holmes / Shutterstock.com

TC Energy (NYSE:TRP) is one of North America’s largest midstream companies. It is primarily known for operating key oil and natural gas pipelines.

Pipelines have natural scarcity value, and that’s become even more true as environmentalists and regulators block potential new pipeline projects such as Keystone XL. In turn, TC Energy’s existing facilities are becoming more valuable.

TC stock has slumped over the past year. Investors are frustrated with the company’s strategic direction. However, management heard these complaints and announced plans to split the company in two. This should unlock shareholder value, and the stock has begun to bounce since that decision.

Morningstar agrees that TRP shares are significantly undervalued. Analyst Stephen Ellis sees fair value at $48/share versus the current $37 price. Ellis is optimistic that TC’s broad network of oil and gas pipelines will give it ample opportunities to reinvest capital at favorable terms going forward.

On the date of publication, Ian Bezek held a long position in CNQ and TRP stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.