We recently published a list of 8 Most Undervalued Oil Stocks To Buy According To Analysts. In this article, we are going to take a look at where Borr Drilling Limited (NYSE:BORR) stands against other most undervalued oil stocks to buy.
The energy sector is buzzing with change in 2024, creating a mix of exciting opportunities and new challenges for investors. As the world embraces renewable energy sources and oil prices stabilize, the market finds itself at a fascinating crossroads. Oil is no longer the untouchable giant it once was, but it’s far from fading away. Instead, it’s adapting to new realities, with smart investors eyeing undervalued oil stocks that still hold potential amidst this evolving landscape.
Brent crude oil prices are expected to hover around $82 per barrel, slightly up from $81 in 2023. This points to a return to pre-pandemic price levels, thanks to OPEC+ strategically limiting production to maintain supply-demand equilibrium. At the same time, retail gasoline prices should stay stable at around $3.30 per gallon, offering some predictability in fuel costs. Meanwhile, U.S. crude oil production is on the rise, with output expected to jump from 12.9 million barrels per day in 2023 to 13.3 million barrels per day in 2024. All signs indicate that the U.S. is gearing up to remain a key player in the global oil game.
While the U.S. economy is forecasted to grow by 2.6% in 2024, energy companies are under pressure to strike a balance between boosting production and addressing environmental concerns. The world’s demand for energy continues to rise, and geopolitical tensions add another layer of unpredictability to the market. Political unrest in countries like Libya, for instance, has raised concerns about potential disruptions in global oil supply. But even with these uncertainties, the fundamentals of the oil industry remain solid, and analysts believe that strategic production cuts by OPEC+, coupled with strong demand from developing nations, will keep oil stocks attractive.
Interestingly, oil and gas companies are ramping up their investments to meet future demand. A report by the International Energy Forum and S&P Global Commodity Insights suggests that upstream investments will need to grow by $135 billion annually to ensure a stable supply by 2030. With North America and Latin America expected to take the lead in capital expenditures, the industry is witnessing a resurgence in investment activity. Brazil and Guyana, in particular, are emerging as major contributors, reinforcing the importance of the Americas in the global oil supply chain.
Despite the rise of renewable energy, oil remains indispensable for the foreseeable future. The current environment offers a sweet spot for investors looking to take advantage of undervalued oil stocks. While these stocks often carry higher risks due to their smaller market caps, they also come with significant upside potential. As global oil consumption continues to grow, driven by the energy needs of both developed and emerging economies, savvy investors are positioning themselves to benefit from this ongoing demand.
In this dynamic setting, the search for hidden gems in the oil sector becomes even more exciting. The eight undervalued oil stocks highlighted in this article reflect both the resilience of traditional energy markets and the opportunities arising from a changing global landscape. For those looking to navigate the energy transition while still capitalizing on the growth of oil demand, these stocks present an intriguing opportunity.
Our Methodology
For this article, we use stock screeners to identify nearly 20 stocks in the oil industry that have a buy or better rating from analysts with a forward Price to Earnings (P/E) ratio of less than 15 and price target above current market price as of October 14, 2024. Next, we narrowed our list to 8 stocks with the highest upside potential. We also mentioned the number of hedge fund holdings for each stock as well. The hedge fund sentiment was taken from Insider Monkey’s Q2 database of 912 hedge funds. The eight undervalued oil stocks are listed in ascending order of their upside potential.
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).
A modern offshore drilling vessel navigating the seas with equipment mounted on its decks.
Borr Drilling Limited (NYSE:BORR)
Upside Potential: 59%
Forward Price to Earnings (P/E) ratio: 5.64
Number of Hedge Fund Holders: 11
Borr Drilling Limited (NYSE:BORR) stands out as an attractive buy among undervalued oil stocks, offering a unique investment opportunity with strong financial metrics. As of October 14, 2024, the stock has a forward P/E ratio of just 5.64, indicating that it is trading at a steep discount compared to industry peers. With a target price of $8.43, the stock presents an upside potential of 59% from its current share price of $5.29.
Borr Drilling Limited (NYSE:BORR) is a global player in offshore shallow-water drilling, specializing in operating jack-up rigs for oil and gas companies. The company’s fleet includes 24 modern rigs, positioning it favorably in a market facing supply constraints. With no new rigs ordered in the last decade and 30% of the global fleet over 35 years old, Borr Drilling Limited (NYSE:BORR) young and premium rigs are well-positioned to benefit from higher utilization and day rates.
The company’s Q2 2024 financial performance reflects this strong market position. Borr Drilling Limited (NYSE:BORR) reported $271.9 million in operating revenue, a 16% increase from Q1, driven by higher day rates and strong contract activity. Adjusted EBITDA rose 17% quarter-over-quarter to $136.4 million, underscoring efficient operations and high rig utilization. Furthermore, the company reported a net income of $31.7 million for the quarter, more than doubling from Q1, signaling improved profitability.
Borr Drilling Limited (NYSE:BORR) liquidity is solid, with $344 million available through cash and credit facilities. This financial strength supports ongoing investments and shareholder returns, as evidenced by the recent quarterly dividend of $0.10 per share. Additionally, the company continues to secure high-value contracts, such as the recent long-term deal for the Arabia I rig in Brazil, which is expected to enhance revenue visibility through 2025.
Borr Drilling Limited (NYSE:BORR) strategy of locking in accretive contracts, combined with a robust backlog and a tight rig market, creates a favorable environment for future growth. With 73% of its 2025 capacity already contracted, Borr Drilling Limited (NYSE:BORR) offers strong revenue visibility and the potential for share price appreciation, making it a compelling addition to any portfolio focused on undervalued oil stocks.
Overall, BORR ranks 6th on our list of most undervalued oil stocks to buy according to analysts. While we acknowledge the potential of BORR to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BORR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.