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Energy stocks undervalued, rebound seen

The sharp drop in oil and natural gas prices has produced an even sharper pullback in energy stocks, creating what may be one of the best buying opportunities in the sector in several years, according to an article in the August 11 edition of Barron's.

Energy issues have rarely been so inexpensive, relative to oil and gas prices, estimated asset values and earnings, said the report, while adding that barring a collapse in oil and gas, most energy stocks could easily rise 25% or more over the next year.

Exxon Mobil, ConocoPhillips, Chevron and BP now fetch five to seven times next year's projected profits and these energy giants have rarely had such low price to earnings ratios, said the article in the weekly financial publication.

The article contends that though oil and natural gas prices have dropped in recent weeks, the stocks are discounting a drop in crude oil and natural gas that is well below current levels.

Shares of major independents like Anadarko Petroleum, Devon Energy and XTO Energy now trade at little more than half their net asset values noted Simmons & Co analyst David Kistler, according to the report.

The report also noted that Anadarko and Devon are viewed as potential takeover targets. (Reuters)