These 3 Oil Stocks Are Wildly Undervalued as Crude Surges Toward $90 a Barrel
Oil prices have been all over the place this year. WTI, the primary U.S. oil price benchmark, started 2022 at around $75 a barrel before rocketing over $120 a barrel following Russia's invasion of Ukraine. Crude has since cooled off on fears that the economy might enter a recession and dent oil demand.
However, after bottoming in the mid-$70s in late September, crude oil has rocketed toward $90 a barrel following news that OPEC will slash its output by a surprising 2 million barrels per day. The move could keep a floor under crude prices and potentially push them higher depending on demand and other supplies. Because of that, several oil stocks look wildly undervalued based on the cash flow they can produce at $90 a barrel.
Diamondback Energy (NASDAQ: FANG) estimates it can produce $4.3 billion in free cash flow at $90 a barrel. The oil company currently has a $24.1 billion market cap. These numbers imply the company trades at 5.6 times its free cash flow or an 18% free-cash-flow yield. That makes it look wildly undervalued compared to the major stock market indexes. The S&P 500 currently trades at a 5% free-cash-flow yield while the Nasdaq's is even lower at 4%.
Source Fool.com
