By Adinah Brown

Oil and gas prices have always been an important sector of the market due to its importance in transportation. Because of this, oil is closely followed by both investors and non-investors alike.

When Oil and Gas prices dropped significantly in 2014, prices at the bowser dropped with it. For everyday consumers a trip to the gas station was a lesson of the impact of supply and demand. OPEC cut its output to ensure that stores would be lowered, but Crude prices dropped to 50% from previous highs.

As a result of the drop, shares in oil stocks were hammered, pushing some into penny territory. For a few years oil stocks have been depressed as oversupply continues, but with the International Energy Agency predicting oversupply to come to an end in late 2017, the time is ripe to review oil stocks that might have slipped under the radar.

Since the oil sector as a whole took a beating on the price drop, the best place to find potential undervalued stocks are those whose activities are not linked to oil prices. As an example, Master Limited Partnerships (MLP’s) like Kinder Morgan and Enterprise Products, typically derive their revenues from transporting oil via pipelines. Whilst the decrease in oil volumes do impact their revenue, it typically was not to the same degree as the drop in oil prices, making the case of undervaluation by the market.

Whilst the recent news of the conclusion of oversupply has seen most of these undervalued opportunities dry up, there are still bargains to be found. In a recent Seeking Alpha article entitled “A Hidden Gem in Oil Stocks”, the author makes a case for Sinopec Kantons Holdings Limited (OTC:SNPKF), a petrochemical storage and logistics company. He compares the assets to a typical oil and gas midstream MLPs, but notes that the P/E of 10.31 is two to three times less than its US counterparts. Although there are valid reasons for this valuation, like a low dividend yield, the author contends that the valuation should still be higher than its current level.

Several small cap stocks might also be worthwhile looking into. EnerJex (ENJR), trading on the NYSE, has a market cap of just $3.14 million. As a producer of oil and gas, its value is strongly linked to oil prices. But with a previous value of $10 per share and a current value of around $0.30, there is plenty of upside if it moved towards its previous levels.

Exco resources (XCO) is another that might be undervalued. Currently trading as a penny stock on the NYSE, it received 90% of its revenue from natural gas, a segment that is expected to rise through 2017. Although, generally recommended as “sell”, it has beaten analyst earnings estimates in recent quarters.

So, even if the recent run of low prices in gas and oil might excite you as a consumer, there remain possibilities in the market for those of you with undervalued oil and gas stocks. With expected rises in the price of crude, time is running out to find those stocks that are a good bargain.

About the Author:

Adinah Brown is a professional writer who has worked in a wide range of industry settings, including corporate industry, government and non-government organizations. Within many of these positions, Adinah has provided skilled marketing and advertising services and is currently the Content Manager at Leverate.