5 Great Energy Stocks Yielding Over 3% Under $20 A Share

Oil prices tumbled 3% yesterday after the Paris-based International Energy Agency (‘IEA’) projected a bleak demand outlook for the commodity.

In its monthly report Tuesday, the energy-monitoring body that advises oil-consuming countries, said that global crude demand will rise by 1.3 million barrels a day in 2016 – down by about 100,000 barrels a day from its earlier projection. IEA also trimmed next year’s forecast by 200,000 barrels per day to growth of 1.2 million barrels a day.

With demand growth slowing amid the specter of record high inventories and rising supply, the agency warned that the world’s oil surplus is set to persist at least until mid-2017.

IEA Follows OPEC’s Bearish Outlook

Before IEA’s weak demand predictions, crude was already falling on OPEC’s worries about the oversupply crisis. On Monday, the international cartel of oil producers said that it expects production from non-member countries – such as Russia – to increase in 2017, reversing prior expectations of a drop.

Next in Focus: The EIA Inventory Data

Looking ahead, the next trigger for oil prices will be the official set of EIA crude oil inventory data.

Last week, the U.S. Energy Department's inventory release showed that crude stockpiles recorded a huge drop.

As per the federal government’s EIA report, oil inventories decreased by a massive 14.51 million barrels for the week ending Sep 2, 2016.

The analysts surveyed by S&P Global Platts – the leading independent commodities and energy data provider – had expected crude stocks to go up some 425,000 barrels. A sharp decline in imports and improvement in refinery demand led to the big stockpile drawdown with the world's biggest oil consumer.

Following the bullish data, West Texas Intermediate (WTI) crude futures jumped 4.7% (or $2.12) to settle at a two-week high of $47.62 per barrel Thursday.

As such, the future direction of the commodity’s movement is anybody's guess.

But Prices Remain Under $50

Whatever the movement, the fact is that oil prices are still under $50 – about half the level of two years ago – and far below the breakeven price for many energy companies. As a result, the profit margins of several players from the industry have seen massive declines. This has hit stock prices as well.

Nevertheless, this has made many stocks not only cheap but also really good bargains. Although the overall bearish sentiment on the oil and gas industry took all stocks down with it, yet some of these remain fundamentally strong.

Look for Inexpensive Stocks with Strong Fundamentals

While there can be many reasons to sell a stock, there is usually a single reason to buy. Who wouldn’t want to pocket a few extra bucks? Low-priced stocks never go out of fashion and one doesn’t really need to be a genius to understand why.

For starters, one can buy a lot many shares of a company for a certain amount. While expenditures seem to increase exponentially, the same is usually not true for our income. From the little that we actually manage to set aside for investment, one would definitely prefer to buy 100 shares, say at around $20, rather than buying 10 shares at $200. Often these $20 firms hold tremendous potential but remain off investors’ radar.

However, most of these players are generally not industry giants and hence, a little extra effort must be put in to select the correct stocks. This is where the Zacks Rank, which justifies a company’s strong fundamentals, can come in really handy.

High Yields Make Them More Attractive

Low-priced stocks offering high yields make for even better choices.

These stocks not only offer higher income in the current low-rate environment but also provide a cushion against equity market risks. Moreover, dividend stocks are historically less volatile than non-dividend stocks and are proven outperformers over the long term.

They are a safe bet to create wealth, as the dividends generally act as a hedge against economic uncertainty and simultaneously provide downside protection by offering sizable yields on a regular basis.

However, there is a trade-off between low-yield stocks which pay consistent dividends and high-yield stocks that could bring in fast cash but are not very consistent. Stocks under $20 reap huge profits as an increase of as little as a dollar in share price adds 5% to the portfolio.

Moreover, most of the low-priced stocks have high levels of liquidity that give them an added advantage. This means investors could easily get their money out of the securities. In fact, trading in higher average daily volumes keeps the bid/ask spread tight and does not lead to extra costs for the investor.

Here, we’ve picked out five energy stocks with a Zacks Rank of #1 (Strong Buy) or #2 (Buy) that are trading under $20 and offer high yields. You can see Zacks Investment Research

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Written By: Zacks Investment Research