7 Deep-Value Energy Leaders With 68% Upside

2013 is shaping up to be the year when the energy sector and energy stocks finally emerge from a brutal 2-year bear market.

After surging into a new multi-year high in 2011, the energy sector proceeded to crash, with the Energy Select Sector SPDR ETF (XLE) falling more than 40% in just over 4 months. The next 2 years weren't much better, with the energy sector languishing in a wave of volatility and showing no real upward progress.

But that all changed in 2013. After consolidating into a wedge pattern, the energy sector and energy stocks are breaking out in a big way. You can see that big move in the chart below, with XLE surging into a new multi-year and all –time high.

But in spite of the awesome reversal, energy stocks still look hugely undervalued. A good bear market will do that to a sector as sentiment crashes and shorter-term players bail. And that is creating a great opportunity for investors to cash in on energy stocks while the sector is still being mostly ignored by the Street. How often do you see headline articles about undervalued oil stocks? And how often do you read headlines about insanely overvalued Tesla (TSLA)? Point made: sentiment is low.

Here is a list of 6 deep-value stocks: from the list I am highlighting Anadarko and Transocean because they offer unique combinations of value and growth.

Transocean Ltd (RIG)

Forward P/E: 11X10-Year Average: 14X

Cimarex Energy Co. (XEC)

Forward P/E: 11X10-Year Average: 18X

Anadarko Petroleum (APC)

Forward P/E: 12X10-Year Average: 21X

Stone Energy (SGY)

Forward P/E: 11X10-Year Average: 8X

Conoco Phillips (COP)

Forward P/E: 9X10-Year Average: 12X

British Petroleum (BP)

Forward P/E: 10X10-Year Average: 9X

Seadrill Ltd. (SDRL)

Forward P/E: 12X10-Year Average: 15X

Anadarko Petroleum (APC)

Anadarko has seen big gains in 2013, up a market-beating 25% in the last 9 months. But in spite of that bullish movement, shares still look deeply undervalued, trading with a forward P/E of 12! x against its 10-year average of 21x. Looking forward, analysts are calling for 9% earnings growth this year, 19% next year and average annual earnings growth of 7% in the next five years. If shares simply traded with the same P/E as its 10-year average, Anadarko would climb 68%. Anadarko also carries a little .80% dividend yield.

Transocean Ltd. (RIG)

Transocean has struggled in 2013, falling 24% since mid-February. But while shares have been weak on the chart, earnings and estimates have been holding steady in higher territory. As it stands, RIG is expected to earn $4.14 in 2013, a 5% growth projection, and $5.52 in 2014, a 33% growth projection. Much like Anadarko, that has shares trading deep into value territory, with a forward P/E of 11X against its 10-year average of 14x and industry average of 13X. Transocean has also turned into a yield hog, carrying a dividend of 5% that is 2X the 10-year average.

The Takeaway

Energy stocks are back on the upswing are a brutal 2-yar run. But in spite of that bullish movement, the sector still looks deeply undervalued, with many leading companies trading with P/E's well below their 10-year average. It's a chance for investors to capitalize on rising crude and natural gas prices while most investor remain uninterred in energy stocks.

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