The stock market has continued to rise this year, with the S&P 500 up over 13%. That has it trading at more than 20 times earnings, well above its average in the mid-teens over the past quarter-century.
While the broader market trades at a premium, there are still pockets of value for discerning investors. In particular, several energy stocks are screaming deals right now. Here are three dirt-cheap ones.
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1. Energy Transfer
Energy Transfer (ET -1.47%) currently trades at less than 9 times earnings. That's the second-lowest level in its peer group, where the average is around 12 times, which is why it currently yields an eye-popping 8%. The midstream giant trades at a low level despite delivering brisk growth (10% compound annual earnings growth rate since 2020). It's also in its strongest financial position in history.
The master limited partnership (MLP) has plenty of growth ahead. It's spending $5 billion this year on growth capital projects, which should fuel accelerated earnings growth. Meanwhile, it has projects in the backlog scheduled to enter commercial service through 2029. These growth projects will give the MLP more fuel to increase its high-yielding distribution, which it aims to grow by 3% to 5% each year.
2. MPLX
MPLX (MPLX 0.99%) also trades at a low valuation, which is why it has a 7.8% distribution yield. Like Energy Transfer, MPLX is an MLP that's growing at a healthy rate. It has grown its earnings and cash flow at a nearly 7% compound annual rate since 2021.
The MLP has ample fuel to continue growing its distribution and payout in the future. It's deploying over $5 billion into growth initiatives this year, including spending on organic expansion projects and making accretive acquisitions. It has growth capital projects lined up to come online through the end of the decade, giving it lots of visibility into its ability to grow its cash flow and high-yielding payout in the future.
3. Plains All American Pipeline
Plains All American Pipeline (PAA) is another high-yielding MLP. The oil pipeline company currently yields 9.6% due to its rock-bottom valuation. The MLP has been growing at a solid clip -- 7% compound annual earnings growth since 2021 -- and is in its strongest financial position in years.
The midstream company is in the middle of optimizing its portfolio. It's selling its Canadian natural gas liquids assets to enhance the durability of its cash flows by shedding assets with commodity price volatility. It's recycling that capital into new investments that produce more resilient cash flows. This strategy will give it more fuel to grow its high-yielding payout.
Bargain-basement energy stocks
Energy Transfer, MPLX, and Plains All American Pipeline trade at low valuations, in part due to their MLP structures, which require sending investors a Schedule K-1 Federal Tax Form each year. While tax filing can be more complex, the high-yield income from these MLPs can justify the extra effort for investors seeking bargains in today's high-priced market.
