As the conflict in the Middle East intensifies, rising oil prices have drawn significant interest from investors in the energy sector. Oil prices surged nearly 10% at the start of the month, reaching around $78 per barrel. Despite rumors of supply chain disruptions, the energy sector remains optimistic about its future.

Amid this, Energy Transfer LP (ET), DNOW Inc. (DNOW), and MRC Global Inc. (MRC) are three undervalued energy stocks that seem ready for a breakout. Their strong fundamentals, coupled with the rising demand for energy, make them attractive investment opportunities in the current market landscape.

The ongoing altercation between Hamas and Israel has heightened concerns about supply chain interruptions. However, the Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) remain confident.

OPEC forecasts global energy demand to grow by 24% between 2024 and 2050. It also expects robust medium-term growth in oil demand, predicting it will reach 112.3 million barrels per day by 2029.

The IEA, similarly, anticipates a global demand for natural gas to rise of more than 2.5% in 2024, with similar growth projected for 2025. In line with this, King's Research estimates the global oil and gas market to reach $8.92 trillion by 2031, at a CAGR of 3.7% from 2024 to 2031.

The optimistic outlook reinforces the potential of energy stocks, even amid geopolitical tensions. Keeping these trends in mind, let us delve into the fundamentals of three energy stocks that are currently trading at a discount, beginning with #3.

Stock #3: Energy Transfer LP (ET)

ET operates natural gas transportation pipelines and storage facilities in Texas and Oklahoma, managing around 20,090 miles of interstate pipelines. The company’s strategic network extends across 44 states, connecting key assets in U.S. production basins.

On July 16, ET announced a joint venture with Sunoco LP (SUN), combining their crude oil and produced water-gathering assets in the Permian Basin. ET holds 67.5% interest, giving it control over more than 5,000 miles of pipelines and 11 million barrels of crude oil storage capacity.

The joint venture could strengthen ET’s infrastructure in a key production area, enhancing its ability to meet increasing demand for energy transportation. By leveraging SUN's assets, ET expands its operational scale, positioning itself for long-term growth and increased revenue opportunities through efficient resource management.

On July 15, ET completed the $2.28 billion acquisition of WTG Midstream. The transaction added 6,000 miles of gas-gathering pipelines and eight processing plants to ET’s network in the Permian Basin, further increasing its market presence in this critical region.

In terms of forward non-GAAP PEG, ET is trading at 0.83x, 47.8% lower than the industry average of 1.59x. Likewise, the stock’s forward EV/Sales and forward Price/Sales multiples of 1.49 and 0.65 are 23.8% and 56% lower than their respective industry averages of 1.95x and 1.47x.

For the fiscal second quarter that ended June 30, 2024, ET’s revenues increased 13.1% year-over-year to $20.73 billion. Its operating income grew 25.2% from the year-ago value to $2.30 billion. Additionally, ET’s net income came in at $1.99 billion or $0.35, per share, increasing 61.6% and 40% year-over-year.

Analysts expect ET’s revenue for the fiscal third quarter ending September 2024 to increase 4.1% year-over-year to $21.59 billion. Its EPS for the ongoing quarter is expected to grow 130.9% from the previous year’s period to $0.35.

Shares of ET have surged 3.5% over the past six months and 17% over the past year to close the last trading session at $16.38.

ET’s POWR Ratings reflect its robust fundamentals. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

ET has an A grade for Growth and a B for Value and Momentum. Within the Energy – Oil & Gas industry, it is ranked #2 out of 76 stocks.

To see ET’s ratings for Stability, Sentiment, and Quality, click here.

Stock #2: DNOW Inc. (DNOW)

DNOW is a supplier of energy and industrial products, as well as packaged, engineered process and production equipment. It also provides supply chain solutions, combined with its DigitalNOW suite, offering technology for digital commerce, data, and information management to enhance operational efficiency and streamline business processes.

On March 12, DNOW announced the all-cash acquisition of Whitco Supply, LLC, an energy products and solutions company. The move is expected to strengthen DNOW’s position in midstream, E&P, and adjacent markets, aligning with its growth strategy and enhancing its capabilities in key industry sectors.

In terms of forward non-GAAP P/E, DNOW is trading at 13.97x, which is 32.1% lower than the industry average of 20.57x. The stock’s forward Price/Sales ratio of 0.54x is 64.9% below the industry average of 1.53x. Also, its forward EV/EBITDA multiple of 6.68 is 43.9% lower compared to the industry average of 11.91x.

DNOW’s revenue for the fiscal second quarter that ended on June 30, 2024, increased 6.6% year-over-year to $633 million. Its EBITDA, excluding other costs, grew 6.4% from the year-ago value to $50 million. Plus, the company’s non-GAAP net income came in at $28 million, rising 3.7% year-over-year, with its non-GAAP EPS coming in at $0.25.

Street expects DNOW’s revenue and EPS for the fiscal year ending December 2025 to increase 1.8% and 2.6% year-over-year to $2.43 billion and $0.89, respectively. Moreover, the company surpassed the consensus EPS estimates in three of its trailing four quarters.

DNOW’s shares have surged 22.6% over the past nine months to close the last trading session at $12.08.

DNOW’s solid prospects are projected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

It has a B grade for Value and Quality. Within the Energy - Services industry, it is ranked #6 out of 50 stocks.

Click here to see DNOW’s ratings for Growth, Momentum, Stability, and Sentiment.

Stock #1: MRC Global Inc. (MRC)

MRC is a global distributor of pipe, valves, fittings (PVF), and infrastructure products to various end markets. It offers supply chain solutions, technical product services, and a digital platform for global customers. With over 8,500 suppliers, the company provides services like product testing, volume purchasing, technical support, and others.

On June 13, MRC announced that its subsidiary, MRC Global (US) Inc., signed an agreement with ExxonMobil in North America. Under the agreement, MRC Global will serve as the primary provider of pipe, valves, and fittings (PVF) products and services for ExxonMobil.

The agreement could boost MRC's revenue streams, increase its market share, and enhance its influence within the energy industry, driving future growth and expansion opportunities.

In terms of forward non-GAAP P/E, MRC is trading at 14.45x, 29.8% lower than the industry average of 20.57x. Moreover, its forward EV/Sales multiple of 0.54 is 72.3% lower than the industry average of 1.94x. Additionally, its forward Price/Sales of 0.33x is 78.5% lower than the industry average of 1.53x.

For the fiscal second quarter that ended June 30, 2024, MRC’s sales were reported to be $831 million. Its adjusted EBITDA increased 3.2% year-over-year to $65 million. Moreover, the company’s adjusted net income was reported to be $27 million or $0.31 per share, showing a rise of 22.7% and 19.2% from the prior year’s quarter, respectively.

The consensus revenue estimate of $3.35 billion for the fiscal year ending December 2025 reflects a year-over-year rise of 4%. Its EPS for the same period is expected to increase 37.7% from the prior year to $1.19. Also, the company surpassed the consensus EPS estimates in three of the trailing four quarters.

MRC’s stock has surged 5.4% over the past six months and 21.6% over the past year to close the last trading session at $12.46.

MRC’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

MRC has an A grade for Value. Out of 50 stocks within the same industry, MRC is ranked #3.

To see the stock's ratings for Growth, Sentiment, Momentum, Stability, and Quality, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

ET shares fell $0.01 (-0.06%) in premarket trading Wednesday. Year-to-date, ET has gained 26.27%, versus a 23.88% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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