Stock Market Overvalued? Not These Stocks!

Frequent visitors to Fool.com know that valuation matters. Today, in between reading articles about how overvalued the market is, I'm going to run through five energy companies posting P/E ratios lower than 15. If you're looking to add a value play to your portfolio, one of these energy companies may be right for you.

1. ConocoPhillips (NYSE: COP  )

Company

P/E

Share Price

Yield

ConocoPhillips

8.58

57.66

4.50%

Source: Yahoo! Finance

There is one stock on this list that I can't stop thinking about, and ConocoPhillips is it. The Conoco of 2013 is in the best shape of its life. Lighter and nimbler after spinning off its chemical, refining, and pipeline business, Conoco is free to focus solely on exploration and production.

And what a focus it has. The company has arguably the best position of all of big oil in the American shale plays. Its drilling costs in the Eagle Ford are the lowest in the industry, a shale play where the company reached the production milestone of 100,000 barrels per day in the fourth quarter. Fellow Fool David Lee Smith argues that we need to let the dust settle on Conoco's recent divestitures before we make an investment decision. There is absolutely something to that, but this stock (and its delightful 4.5% yield) should be watched like a hawk.

2. HollyFrontier (NYSE: HFC  )

Company

P/E

Share Price

Yield

HollyFrontier

6.96

$58.47

2.10%

Source: Yahoo! Finance

It's no secret that American refiners with access to domestic crudes had banner years in 2012. HollyFrontier was among the winners, growing 84% last year. And despite missing fourth-quarter earnings on the heels of some maintenance issues, this midcontinent refiner will continue to find success in the days ahead.

The biggest risk in investing in a refiner is that profits are based entirely on the crack spread, the difference between the price of oil and the price of refined products. Commodity prices are volatile, and so too are refiners' performances. I think the macro picture right now is enough to ensure a strong performance from refining industry for the next three to five years, but that volatility should be taken into account for your investment thesis.

3. Halliburton (NYSE: HAL  )

Company

P/E

Share Price

Yield

Halliburton

14.48

$41.03

1.30%

Source: Yahoo! Finance

There is plenty of good news coming from oilfield services company Halliburton this year. The stock is up almost 14% year to date and the company recently announced it was increasing its dividend 39%.

The big driver here is that the company expects North American margins to rebound in 2013. That's all well and good, but the energy game is a global one. Halliburton's biggest asset is its ability to innovate the oil and gas production business, and monetize that innovation wherever energy markets may be. The Fool actually has a special report on Halliburton you can find here.

4. National Oilwell Varco (NYSE: NOV  )

Company

P/E

Share Price

Yield

National Oilwell Varco

11.53

67.14

0.80%

Source: Yahoo! Finance

Multiple Fools in Fooldom like National Oilwell Varco right now. Its yield leaves a little to be desired, but the fundamental story at this company is one for the long term. Oil production is getting increasingly complicated, and just as with Halliburton, National Oilwell Varco provides services and equipment that will only grow more relevant as time goes on.

Its business is in great shape, as all three segments produced year-over-year gains, en route to beating earnings expectations. Its debt to equity ratio is significantly lower than other service companies like Halliburton and Schlumberger, and its operating margin is among the highest in its peer group. It is hard to ignore fundamentals like that.

5. Energy Transfer Partners (NYSE: ETP  )

Company

P/E

Share Price

Yield

Energy Transfer Partners

9.63

47.16

7.50%

Source: Yahoo! Finance

Energy Transfer Partners is a midstream master limited partnership which means two things to investors: a high distribution yield and extra paperwork come tax time. Energy Transfer's P/E is one of the best in the industry, largely because its share price has lagged over the past few years because the partnership has not increased its distribution since 2008.

Energy Transfer is coming off a great fourth quarter, however, and many feel that a distribution increase is not far off. When that happens, this stock will rise. In fact, it is already up 4.8% this year, far outpacing 2012's 7.18% drop. In the meantime, management is shoring up the fundamentals and increasing the percentage of revenue generated from fixed-fee contracts, mitigating the impact of commodity risk.

Foolish takeaway
There are no guarantees in investing, and merely owning a low P/E ratio does not make any stock a sure thing. But it does give investors a good jumping off point for researching solid investment ideas.

Energy Transfer Partners has one of the highest yields on this list, and the valuation/dividend combination is hard to ignore.  Do a bit more research and decide if ETP and its sizable dividend payment could be a good fit for your portfolio. Get started with The Motley Fool's premium research report on the company. Simply click here now for our thorough expert analysis of this midstream.


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