Apache Corporation (APA), Devon Energy Corp (DVN), Chesapeake Energy Corporation (CHK): Three Opportunistic Energy Stocks for Your Portfolio

In Morningstar’s recently-released list of 10 high-conviction stocks, there are two energy companies which have high star ratings. They are Apache Corporation (NYSE:APA) and Devon Energy Corp (NYSE:DVN). Since the beginning of the year, both Apache and Devon have increased 7.5% and 15.7%, respectively, lagging the S&P 500’s return of nearly 17.2%. Let’s take a closer look to determine whether or not we should invest in those two energy companies at their current trading prices.

Apache – strong balance sheet and cheap valuation

At the end of 2012, Apache Corporation (NYSE:APA) had total proved reserves of around 2.9 billion BOE, and around 28% of its total proved reserves were in the Permian Basin and 19% was in Canada. In the first quarter of 2013, Apache Corporation (NYSE:APA)’s revenue experienced a decline of more than 10% to $4 billion while net income came in at $698 million, or $1.76 per share, lower than net income of $778 million, or $2 per share in the first quarter last year. In the first quarter, the company managed to increase global production to nearly 782,000 BOE per day, mainly attributable to a 45% rise in North American onshore liquids output.

What makes Apache Corporation (NYSE:APA) interesting is the plan to divest as much as $4 billion in assets by the end of 2013. The company would use $2 billion of proceeds to pay down the debt and the remaining $2 billion to buy back its shares. The company is focusing on a much stronger balance sheet although it already has a conservative capital structure. As of March 2013, it had nearly $32 billion in equity, $248 million in cash, and nearly $12.5 billion in total debt. At $84.40 per share, Apache Corporation (NYSE:APA) is worth nearly $33 billion on the market. The market values the company quite cheaply at only 3.72 times EV/EBITDA.

Devon – undervalued by the market

Devon Energy Corp (NYSE:DVN) focuses its operations in North American onshore, with total proved reserves of more than 2.96 billion BOE at the end of 2012. Most of its proved reserves, more than 1 billion BOE, or 35.7% of the total proved reserves, were in Barnett Shale in the U.S. The Canadian Oil Sands ranked second, with 528 million BOE in the total proved reserves. What I like about the company is its aggressive divestment of the international and deepwater assets. Fool contributor Daniel Miller wrote that the company has divested around $10 billion in assets, and its recent focus on U.S. and Canadian assets hasn’t been recognized by the market.

Like Apache, Devon Energy Corp (NYSE:DVN) has quite a strong balance sheet. As of March 2013, it had more than $19.7 billion in total stockholders’ equity, $6.5 billion in cash and short-term investments, and $12.2 billion in both long and short-term debt. Devon Energy Corp (NYSE:DVN) is trading at around $60.20 per share with a total market cap of nearly $24.5 billion. The market values Devon Energy Corp (NYSE:DVN) at around 6.53 times EV/EBITDA.