We recently compiled a list of the 10 Best Affordable Stocks To Buy Right Now. In this article, we will look at where Devon Energy Corporation (NYSE:DVN) ranks among the best affordable stocks to buy right now.
The stock market appears to be at a turning point. While major indexes are still hovering near record levels, there’s been increased volatility this earnings season. Stocks tied to artificial intelligence and semiconductors, once investor darlings, have seen significant sell-offs. With the approaching presidential election, and shifting Federal Reserve policies, uncertainty might be the central theme this autumn.
The Job Openings and Labor Turnover Survey, a key report from the Labor Department, revealed that job openings dropped to 7.67 million in July, a decrease of 237,000 from June’s revised figure and the lowest since January 2021. This decline reduced the ratio of job openings per available worker to just under 1.1, a significant drop from its peak of over 2-to-1 in early 2022. The data is expected to support the Federal Reserve’s anticipated move to begin lowering interest rates at their upcoming September 17-18 meeting.
Michael Yoshikami, CEO of Destination Wealth Management, believes the U.S. Federal Reserve could make a significant 50 basis point rate cut without unsettling the markets. His comments align with Nobel Prize-winning economist Joseph Stiglitz, who recently suggested the Fed should consider a half-point cut, arguing that the central bank’s prior tightening moves were excessive. While Yoshikami acknowledged that such a large cut might fuel recession fears, he emphasized that concerns are exaggerated. He also noted that the recent market sell-off, which marked the S&P 500’s worst week since March 2023, followed a period of “massive profits” in the prior month. Despite a turbulent start, August saw gains across major indexes, and September is typically a slower trading period.
Thanos Papasavvas, founder and chief investment officer of ABP Invest, acknowledged growing concerns about a potential economic downturn. ABP recently raised its recession probability for the U.S. to 30%, up from 25% in June, though Papasavvas described the risk as “relatively contained.” He emphasized that key economic indicators, such as manufacturing and unemployment rates, remain “resilient.”
On another front, U.S. factories continued to experience a slowdown in August, raising concerns about the direction of the economy. The Institute for Supply Management’s monthly survey of purchasing managers showed that only 47.2% reported growth for the month, falling below the 50% threshold that signals expansion. Although this was slightly higher than July’s 46.8%, it missed the Dow Jones consensus estimate of 47.9%.
Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee stated:
“While still in contraction territory, U.S. manufacturing activity contracted slower compared to last month. Demand continues to be weak, output declined, and inputs stayed accommodative.”
Despite the index indicating contraction in manufacturing, Fiore noted that a reading above 42.5% typically suggests overall economic expansion. Last month’s weaker-than-expected report triggered a sharp market downturn, leading to an 8.5% drop in the S&P 500 before a partial recovery. Following the latest ISM data release on September 3, stocks continued to fall, with the Dow Jones Industrial Average down nearly 500 points.
Our Methodology
To create our list of the best affordable stocks to buy, we used stock screeners to identify undervalued stocks with forward price-to-earnings (P/E) ratios below 15 as of September 16, all of which are also favored by analysts. This selection is based on the popularity of these stocks among the 912 hedge funds tracked by Insider Monkey. The list is arranged in ascending order, according to the number of hedge funds holding each stock.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Devon Energy Corporation (NYSE:DVN)
Forward P/E Ratio as of September 16: 6.87
Number of Hedge Fund Holders: 52
Devon Energy Corporation (NYSE: DVN) is a leading company in the U.S. energy sector, specializing in the exploration, development, and production of oil, natural gas, and natural gas liquids. The company’s strategic investment in its core Delaware Basin assets has boosted productivity, leading the company to raise its production volume estimates twice this year, reflecting a 5% increase over its initial guidance. Additionally, the company has joined the recent wave of industry acquisitions with a $5 billion deal to acquire Grayson Mill’s Williston Basin assets, funded through a mix of cash and stock. Management expects this acquisition to boost oil equivalent production by 15% and generate a similar increase in free cash flow. On that front, Rick Muncrief, President and CEO of the oil giant, said the following during the company’s Q2 2024 Earnings Call:
“The improved outlook is driven entirely by our legacy portfolio. We now expect to produce more than 680,000 BOE per day in 2024, which represents a 5% increase compared to our initial budget expectations heading into the year. In addition, our outlook was further strengthened by the Grayson Mill acquisition in Williston Basin. These assets are an excellent addition to our portfolio, fitting perfectly within our broader strategic framework to accumulate resource and grow oil-weighted production in the best parts of the top U.S. shale plays. Upon completion of the transaction, Devon will be one of the largest oil producers in the U.S. with average daily rates estimated at around 375,000 barrels of oil per day. This transaction nearly triples our production and expands our inventory in the Williston Basin.”
RBC Capital reiterated its “Sector Perform” rating and maintained a $57 price target for Devon Energy Corporation (NYSE:DVN). The review pointed to a slight improvement in Devon’s production outlook, driven by strong well performance and enhanced operational efficiencies. However, the company’s production is expected to slow in the second half of 2024 due to an aggressive drilling schedule earlier in the year and a reduced working interest in the Permian Basin. RBC Capital also indicated that Devon Energy Corporation (NYSE:DVN) may explore additional acquisition opportunities going forward.
Devon Energy Corporation’s Q2 2024 earnings report showcased strong results, with earnings per share of $1.56 and revenue of $4.6 billion, reflecting an 8% year-over-year increase. The company also enhanced shareholder returns, issuing a $0.72 per share variable dividend and executing a significant share repurchase program, buying back approximately $500 million worth of shares during the quarter.
Overall DVN ranks 8th on our list of the best affordable stocks to buy. While we recognize the potential of DVN as an investment, we believe certain deeply undervalued AI stocks offer greater prospects for higher returns in a shorter period. If you’re seeking an AI stock with even more promise than DVN and trading at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.