Total: Screaming Buy in Energy?

11/19/2014 7:00 am EST


As consumers can guess from the lower prices enjoyed at the gas station, oil is trading at a low it hasn't seen in a long time, observes Russ Kaplan, value investor and editor of Heartland Advisor.

Oil may be at a low, or may go lower, but it will eventually go up. In my view, investors have greatly overreacted to the oil stocks.

Some of us will remember that not that long ago the price of gas was under $1.00 per gallon. Even in those times, the oil companies were making decent profits.

Although the cost of oil per barrel is trading at very undervalued prices, the earnings of many oil companies continue to hold up, along with very decent returns on equity.

Low oil prices have our latest new recommendation in the oil industry, Total (TOT). Its international headquarters is in Paris, France, but is a big multinational company, which exports around the world. Its US Headquarters are in Houston, Texas. 

Total is the fifth largest oil company in the world. It is a diversified company that is into oil and petrochemicals. The firm also produced 6.1 billion cubic feet of natural gas in 2013, up 5% from the previous year. They are also preparing for the future by working on creating renewables in the area of solar energy.

This is a solid financial company rated A++ by Value Line, which is the highest ranking possible. Total has fallen from a 2014 high of $74 per share to its current price in the mid fifties.

With a price earnings ratio of 10, it is considerably lower than that of the S&P 500 (SPX), which is at about 16. To me, this represents a screaming buy.

For those of you interested in the dividend, Total's is an incredibly high rate of 5.5%. It is safe and has been raised several times in the last few years. It will probably be raised again.

We note that one unfavorable development occurred that was beyond the company’s control; the firm's CEO, Christophe de Margerie, recently died in a plane crash in Moscow. 

The board of Total acted promptly by naming Patrick Pouyanne as its chief executive officer. This well-managed corporation is more than just its former CEO.  The stock was a buy before the accident and it is still a buy now. 

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