8 Most Undervalued Small-Cap Stocks To Buy According To Analysts

2. Civitas Resources Inc. (NYSE:CIVI)

Forward Price-to-Earnings Ratio: 4.14

Average Upside Potential: 56.42%

Number of Hedge Fund Holders: 52

Civitas Resources Inc. (NYSE:CIVI) is an independent oil and gas exploration and production company focused on the Permian Basin in the US, specializing in developing unconventional oil and gas resources, primarily targeting the Wolfcamp and Bone Spring formations. It aims to maximize value for shareholders through efficient operations, low-cost production, and disciplined capital allocation.

Revenue grew strongly by 98.73% year-over-year in Q2 2024, generating $1.31 billion, where Crude oil accounted for 87% of total revenue. Total volumes were above plan as the Permian production was up about 12%. Around 58% of second-quarter sales volumes in the Permian Basin were from the Midland Basin, with 42% from the Delaware Basin.

Oil was up 5%, driven by strong well performance and continued cycle time acceleration. In late June 2024, production began on 13 four-mile laterals in the Watkins area of the DJ Basin, marking the longest laterals ever drilled and completed in Colorado.

The Permian Basin saw a significant increase in sales volumes, up nearly 12% from the first quarter. This growth was fueled by strong production from recent wells in the Delaware and Midland Basins. Additionally, well costs in the Midland Basin have decreased by 10% since the beginning of the year, leading to an improvement in well-level average rates of return by more than 10% at a WTI price of $70 per barrel.

It made significant progress in sustainability in 2023, reducing emissions by 41%, plugging 19 orphan wells, and maintaining a strong safety record. The company remains committed to carbon neutrality and has updated its targets to include its recent Permian Basin acquisitions. Investors seeking exposure to the oil and gas industry may find Civitas Resources Inc. (NYSE:CIVI) to be a compelling investment option.

Diamond Hill Mid Cap Strategy stated the following regarding Civitas Resources, Inc. (NYSE:CIVI) in its Q2 2024 investor letter:

“Despite rising valuations, we continue finding attractively valued, quality companies the market is overlooking amid its increasingly narrow focus on the mega-cap technology stocks dominating the major indices. In Q2, we introduced new positions in Sysco Corporation, Civitas Resources, Inc. (NYSE:CIVI), Labcorp Holdings and VeriSign.

Civitas Resources is an oil and natural gas explorer and producer focused primarily on the DJ Basin. It has recently made several acquisitions in the Permian Basin as it attempts to expand and diversify its holdings beyond the DJ Basin — a decision that we appreciate. It has low-cost drilling inventory, and we believe the management team responsibly runs the company. We added it to the portfolio in Q2, as we think its assets and cash-generation potential remain undervalued by the market.”