We recently published a list of 10 Deep Value Stocks to Buy Now. In this article, we are going to take a look at where Civitas Resources Inc. (NYSE:CIVI) stands against other deep value stocks to buy now.
Deep value investing is a more extreme form of value investing, focusing on stocks that are not just undervalued but significantly mispriced relative to their intrinsic worth. As a contrarian strategy, it seeks companies trading at substantial discounts, often due to temporary setbacks or market inefficiencies. Considered a subset of value investing, deep value investing was pioneered by Benjamin Graham and later refined by Warren Buffett. It targets stocks with extremely low valuations, such as low price-to-earnings (P/E) multiples, low price-to-book (P/B) ratios, and sometimes distressed financial conditions. Given the current macroeconomic landscape—characterized by rising interest rates, inflationary pressures, and increased market volatility—deep value investing has gained renewed relevance as investors search for overlooked opportunities in an increasingly expensive market.
Warren Buffett’s famous mantra, “Be fearful when others are greedy, and greedy when others are fearful,” perfectly encapsulates the essence of deep value investing. This strategy thrives on market inefficiencies, focusing on companies that may be experiencing temporary setbacks due to economic cycles, regulatory challenges, or investor sentiment but have strong potential for long-term recovery. Investors seek businesses with solid fundamentals, strategic shifts, or macroeconomic tailwinds that could serve as catalysts for revaluation.
The Case for Deep Value Investing Today
In a mid-2024 article, GMO LLC’s Asset Allocation Team reaffirmed their conviction in deep value investing, highlighting it as their top long-only investment idea. Rather than relying on traditional labels of “growth” or “value,” they define deep value stocks as those trading significantly below their fundamental worth. While low valuation multiples such as P/E ratios can be indicative of undervaluation, GMO emphasizes that not all low P/E stocks are true bargains—some may be structurally weak—while certain high P/E stocks may still justify their premiums.
GMO’s deep value strategy focuses on the cheapest 20% of stocks relative to intrinsic value, carefully filtering out cyclical traps and low-quality businesses. Their research suggests that in an environment where investor optimism has propelled many stocks to record highs, numerous overlooked deep value opportunities remain. Despite requiring patience, these undervalued stocks present strong potential for absolute and relative returns.
Portfolio managers at the Heartland Mid Cap Value Fund recently cautioned against investing in speculative stocks with inflated valuations, arguing that current market trends of extreme valuation growth and diminished risk aversion are unsustainable. Despite short-term underperformance, they remained confident that disciplined value investing would deliver superior long-term returns.
In today’s relatively expensive market, deep value stocks stand out as attractive opportunities amid widespread over-valuation. Many fundamentally strong businesses have been unfairly punished due to temporary headwinds, making them attractive investments for long-term value seekers. However, deep value investing is not without its challenges—investors must exercise patience and conduct thorough due diligence to distinguish between genuine value opportunities and structurally declining companies.
For those willing to navigate short-term volatility in pursuit of long-term gains, deep value investing offers a promising path.
Our Methodology
To identify the 10 deep value stocks to buy now, we started by screening U.S.-listed companies with a market capitalization over $2 billion. We then applied three key deep-value criteria: a forward price-to-earnings (P/E) ratio of 10 or lower; return on equity of at least 10%; and a dividend yield of at least 1%. Of the shortlisted stocks, we then ranked the top 10 stocks based on their forward P/E ratio, placing those with the lowest P/E at the top. Additionally, we also included data on hedge fund holdings in these companies as of Q4 2024 to provide further insight into investor interest.
Note: All pricing data is as of market close on March 10.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A close up of a tanker truck transporting crude oil, natural gas liquids, and natural gas.
Civitas Resources Inc. (NYSE:CIVI)
Fwd. P/E: 3.9
Dividend Yield: 12.5%
Number of Hedge Fund Holders: 47
Civitas Resources Inc. (NYSE:CIVI) is an independent oil and gas exploration and production company with operations concentrated in Colorado’s DJ Basin and the Permian Basin across Texas and New Mexico.
2024 has been brutal for Civitas Resources Inc. (NYSE:CIVI) shareholders, with the stock losing over 50% of its value since the start of the year. As of March 10, shares trade near a 52-week low of $31.70, levels not seen since mid-2021. Investor sentiment has been weighed down by underwhelming financial performance, a trend that persisted in Q4 2024. While revenue met expectations, higher-than-anticipated operating costs—stemming from winterization efforts, maintenance, and workover activities—dented earnings, leading to a lower-than-expected EPS. In response, the company trimmed its 2025 capital expenditure (capex) by 5% compared to 2024.
Adding to the pressure, KeyBanc downgraded the stock from Overweight to Sector Weight, citing weak 2025 guidance and heightened uncertainty. The lack of management commentary on a possible Denver-Julesburg Basin divestiture has raised investor concerns, while the sudden departure of the chief operating officer after just 22 months has fueled speculation beyond simple cost-cutting. Moreover, Civitas’ 2025 forecast projects a 4% decline in oil production, which could weigh on the stock further.
Despite these headwinds, Civitas Resources Inc. (NYSE:CIVI) still has significant cash flow potential. The company is targeting an adjusted free cash flow (AFCF) of $1.1 billion in 2025, with an AFCF yield of 22%, assuming oil prices stay around $70 per barrel. Backed by a high-quality asset base and low-breakeven inventory, Civitas has historically been a strong cash generator. In 2023 and 2024, the company delivered $796 million and $1.3 billion in AFCF, respectively, returning 92% of those cash flows to shareholders through dividends and stock buybacks.
Overall, CIVI ranks 1st on our list of deep value stocks to buy now. While we acknowledge the potential of CIVI to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CIVI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires
Disclosure: None. This article is originally published at Insider Monkey.
