The world woke up to a pleasant surprise on Monday morning as pharmaceutical giant Pfizer announced positive data for its COVID-19 vaccine candidate. That news fueled a massive rally in the market, especially shares of companies most impacted by the pandemic, like oil stocks

However, despite some impressive rallies in the oil patch this week, several stocks still look cheap. Three that stood out to some of our energy contributors were ConocoPhillips (NYSE:COP), Chevron (NYSE:CVX), and ONEOK (NYSE:OKE). Here's why they still look like they have a lot of upside potential even after their recent vaccine-fueled bounce. 

An oil pump and barrel on top of money.

Image source: Getty Images.

Medium risk, high reward

Daniel Foelber (ConocoPhillips): Shares of ConocoPhillips soared over 14% on Monday followed by an additional 6% pop on Tuesday as investors cheered higher oil prices, vaccine hopes, and a Biden presidency. But shares of ConocoPhillips are still down 45% year to date, even after Monday and Tuesday's price action. The company has a dividend yield of 5.1% and looks to be a good option for investors who want to take a stab at the upstream sector of oil and gas.

As an oil and gas exploration and production (E&P) company, ConocoPhillips is susceptible to the volatility of oil prices. To counter that, it has been gradually reducing its costs and improving efficiency, meaning that it can make a profit at lower oil prices. Seeking to further lower its breakeven price per barrel, the company entered into an agreement to acquire Concho Resources, another E&P and one of ConocoPhillips' competitors. The all-stock deal at a 15% premium to the closing price on Oct. 13 values Concho shares at around $50.50 each, well below the $85 range where shares were trading at the beginning of the year.

ConocoPhillips believes that combining the two companies' asset portfolios will give it an average cost of supply below $30 per barrel of WTI crude oil -- the U.S. benchmark. This would position ConocoPhillips favorably in a higher oil environment, and certainly give it an edge if oil languished at $40 for a while.

Although the company's balance sheet has taken on debt, it retains a strong cash position, exiting the third quarter with $2.8 billion in cash and $4.03 billion in short-term investments. In the third quarter, ConocoPhillips earned a significant amount of cash from operations, nearly enough to cover its dividend and expenses during a quarter that averaged $30.94 per barrel of oil equivalent (BOE). There are few producers better positioned than ConocoPhillips to take advantage of higher oil prices while remaining protected in case they fall again.

Strong going in, stronger coming out

Reuben Gregg Brewer (Chevron): Up more than 10% the day that Pfizer and BioNTech announced positive vaccine news, Chevron is still down around 33% so far in 2020. The stock's yield, at 6.2%, is near its highest levels over the past 30 years. The view of this integrated oil giant improved because of the vaccine update, but it still looks historically cheap. There are two key reasons consider buying it.

The first is the company's conservative balance sheet. Chevron's debt-to-equity ratio is roughly 0.26 times. That's up more than 40% since the start of the year, but still the lowest of any of its peers. In fact, 0.26 times is pretty low for just about any company. Being fiscally conservative is the norm for Chevron and suggests that even if energy prices remain low for an extended period it will manage to muddle through this downturn just like it has many downturns before.   

CVX Debt to Equity Ratio Chart

CVX Debt to Equity Ratio data by YCharts

The next reason to like Chevron is that it entered into the downturn with a strong production profile, as it was benefiting from past spending. So, unlike some peers, it didn't need to make big investments to keep its production growing. That, in turn, has left it in a better position now that the industry has started to trim capital budgets. In fact, Chevron has been able to use the troubles in the oil sector to make a large, strategic acquisition. In other words, not only is it likely to survive the current headwinds, but it's also likely to come out the other side a stronger company. 

Lots of upside left

Matt DiLallo (ONEOK): Shares of pipeline giant ONEOK have rallied more than 20% since the news broke about the effectiveness of Pfizer's COVID-19 vaccine. Fueling that relief rally is the hope that a return to normal is possible in the coming months. That would give people the freedom to travel and businesses the ability to reopen fully. The ensuing economic rebound would fuel energy demand, increasing the flow of hydrocarbons through ONEOK's systems and boosting its cash flow.

That potential volume improvement would be a boon for ONEOK, which had expected to grow its earnings by more than 20% in 2020 and 2021, fueled by expansion project completions. However, with the pandemic weighing on oil prices and volumes, ONEOK is only on track to grow its earnings by 8.5% this year.

Still, that's a decent number considering many of its peers are seeing their earnings decline this year. To put it into perspective, the company only trades at about 10 times its expected earnings, which is a cheap level for a company that's still growing despite the headwinds.

Meanwhile, ONEOK recently put the finishing touches on its expansion program, which has it on track to generate excess cash in the coming quarters after paying its nearly 11%-yielding dividend. That will give it some money to pay down debt, which has been weighing on its stock this year as it's still down more than 50% even after accounting for this week's rally. Because of that, shares still have lots of upside as the energy market recovers, especially when adding in its big-time dividend.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.