We recently published a list of 10 Best Depressed Stocks To Buy Heading into 2025. In this article, we are going to take a look at where Civitas Resources, Inc. (NYSE:CIVI) stands against other best depressed stocks to buy heading into 2025.
Will a Strong Earnings Season Help Overcome Election Volatility?
In one of our recent articles about 10 High Growth Non-Tech Stocks That Are Profitable in 2024, we talked about how the US market has continued to show resilience against economic and market challenges. We also covered the analysis of Anastasia Amoroso, iCapital chief investment strategist regarding the current market conditions. Here’s a short excerpt from the article:
“Anastasia Amoroso, the iCapital chief investment strategist, recently appeared on a CNBC interview to talk about the current market conditions.
She mentioned that investors had many reasons for caution to start October. Several outside moves had to be digested including yields spiking, the price of oil spiking, and some resurgence for the dollar. However, the market has been able to absorb all these moves quite impressively. She mentioned that the Fed is not likely going to cut rates by 50 basis points in the consecutive meetings and the markets have now repriced it to 25 basis points cut, which is now reflected in the yield prices.
Amoroso thinks that what could have been a bumpy start to the month has now paved the way for a soft landing momentum. While talking about how the rate cut is now a moving target for the Fed, she mentioned that it has always been known that the Fed reacts to data and it is not bad news that data is pointing towards an upside. Moreover, what’s more interesting is that not only is the Fed talking about the economy being on a strong footing but corporations including banks are calling it a soft landing, which is breathing new life into the market.”
As the market has entered the early stage of the earnings season, analysts are expecting earnings to help buffer the volatility that might come from the elections. Alan McKnight, Regions Wealth Management CIO, joined CNBC for an interview to talk about how the rate cut environment is reflected in the earnings. He thinks although it is very early to make any judgments regarding the earnings, however, as far as the recent data is concerned it is painting a positive image. He also mentioned that the good thing about the earnings so far is that overall management and CEO sentiment regarding their companies is positive and most are not expecting any weakness as we approach the end of the year.
While answering the question whether the current positivity is a trickle-down effect of the interest rate cut. McKnight thinks that the effect of the rate cut has not kicked in yet, what we are witnessing is a very strong consumer environment led by encouraging spending. The US consumer has been resilient and wants to spend, moreover, the rate-cut environment is enabling them to continue spending.
The earnings expectations have been lower moving in but they continue to rise as we reach the year’s end. McKnight thinks that this is going to be one of the key challenges for companies moving into 2025. Companies have been able to layer in some operating margin improvement, including sales growth. However, next year, they will have to sustain this growth, which is going to be difficult. Therefore, he sees growth coming down in 2025. He also pointed towards valuations becoming a problem if growth comes down, because the market is currently trading at a forward price-to-earnings ratio of 22 to 23, and companies would have to at least maintain current-year earnings growth to be fairly valued.
The interest rates are coming down, which should technically bring down the cost base for the market. However, the cost base never comes down as quickly as the market would like, similar to inflation, that’s where companies would find it challenging to maintain high growth rates.
McKnight advised that investors should stay balanced while investing, he mentioned that investors shouldn’t be chasing high flyers or just the big names that have been working, instead have a broad portfolio based on quality. Moreover, while mentioning the sectors he likes, McKnight mentioned Utilities and Communication Services. He thinks that the current news regarding the expected growth in the power sector along with the discussion of nuclear power for data centers is going to shape utilities over the next 3 to 5 years.
Our Methodology
To curate the list of the 10 best-depressed stocks to buy heading into 2025, we used the Finviz stock screener and Yahoo Finance. We defined depressed stocks as those trading within 0% to 3% of their 52-week lows. Using the Finviz stock screener, we got an aggregated list of stocks that fit our criteria. Next, we ranked these stocks based on the analyst upside potential sourced from CNN. All indicators were recorded on October 17th, 2024.
Moreover, we have also mentioned the number of institutional investors holding each stock sourced from the Insider Monkey database. Please note that the list is ranked in ascending order based on the analyst upside potential.
Why do we care about what hedge funds do? 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 close up of a tanker truck transporting crude oil, natural gas liquids and natural gas.
Civitas Resources, Inc. (NYSE:CIVI)
52 Week Range: $49.10 – $79.97
Current Share Price: $50.23
Number of Hedge Fund Holders: 52
Analyst Upside Potential: 61.26%
Civitas Resources, Inc. (NYSE:CIVI) is an independent oil and gas company based in Colorado, primarily focused on producing energy from two major areas including the Denver-Julesburg Basin and the Permian Basin. The company has significant land holdings, with about 453,600 net acres in the DJ Basin and 68,500 net acres in the Permian Basin. Their total production is approximately 280,000 barrels of oil equivalent per day.
The company has undergone significant transformation in the past year, particularly with its entry into the Permian Basin, which has enhanced its operational scale and quality. This strategic move has provided the company with greater flexibility in capital allocation and created a more sustainable business model.
During the second quarter of fiscal 2024, the Permian Basin sales increased by 12% subsequently mainly due to strong production in its Delaware and Midland Basin wells. The overall revenue of Civitas Resources, Inc. (NYSE:CIVI) grew by more than 98% year-over-year, with crude oil making up around 87% of the revenue.
Another key highlight for the quarter came in as lower-than-expected operating expense of $8.97 per barrel of oil. Moreover, the Well costs in the Midland Basin have come down by 10% lower than its initial cost indicating that the company has gained operational efficiency and is generating greater margins per barrel of oil produced.
It is one of the best-depressed stocks to buy heading into 2025 because the stock is currently trading close to its 52-week lows while analysts are expecting its price to shoot up by 61% during the year.
Diamond Hill Mid Cap Strategy stated the following regarding Civitas Resources, Inc. (NYSE:CIVI) in its Q2 2024 investor letter:
“Despite rising valuations, we continue finding attractively valued, quality companies the market is overlooking amid its increasingly narrow focus on the mega-cap technology stocks dominating the major indices. In Q2, we introduced new positions in Sysco Corporation, Civitas Resources, Inc. (NYSE:CIVI), Labcorp Holdings and VeriSign.
Civitas Resources is an oil and natural gas explorer and producer focused primarily on the DJ Basin. It has recently made several acquisitions in the Permian Basin as it attempts to expand and diversify its holdings beyond the DJ Basin — a decision that we appreciate. It has low-cost drilling inventory, and we believe the management team responsibly runs the company. We added it to the portfolio in Q2, as we think its assets and cash-generation potential remain undervalued by the market.”
Overall, CIVI ranks 7th on our list of best depressed stocks to buy heading into 2025. While we acknowledge the potential of CIVI to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.