Forget the S&P 500 – here’s an under-the-radar US stock that I think looks like a bargain

From an investment perspective, S&P 500 It looks risky right now. Heavy concentration in some expensive names has led multiple analysts to forecast weak returns for the next 10 years.

This may cause investors to move away from the United States as they look for opportunities. But I think this is a mistake; There are some stocks outside the index that I really like the look of.

an oil company

An example: Chord Energy (NASDAQ:CHRD). Earlier this year, the company merged with Enerplus, creating the largest oil producer in the Williston Basin.

My thesis here is relatively simple. Management reports that its assets will allow it to extract oil at low prices for 10 years, and I think this will provide returns for strong investors.

Chords balance It is extremely powerful. This allows the company to return a significant portion of the cash it generates to investors through dividends and share buybacks.

This sets it apart from other oil stocks and makes it very attractive to me. I think this looks like a bargain even when US stocks as a whole are at historically expensive levels.

Producing

Chord’s location in Williston means its costs are higher than those of its Permian-based peers. But I think there’s still a lot for investors to be excited about.

In August, the company expected to generate about $700 million in free cash this year, based on a $70 oil price. And from next year this will increase further with synergies from the Enerplus transaction.

Since then, West Texas Intermediate (WTI) has fallen to around $67 per barrel. But Akor’s market value It’s currently under $8 billion, which I think makes things very interesting.

At this level, even if oil prices fall further, investors can still receive a very good free cash flow return. But there’s more to the story than that.

Dividends

Instead of doing research, Chord aims to return its free money to shareholders. The company aims to keep its leverage ratio below 1 and determines its dividend policy according to how well it achieves this.

Source: Akor Investor Presentation August 2024

The company is currently a net debt to EBITDA ratio rate 0.3. At this level, 75% of the free cash the company generates returns to investors as dividends.

A positive view on the outlook for WTI is a necessary condition for investing in oil stocks. But if the price of oil stays above $70 for the next 10 years, things could get very interesting.

If I invested £1,000 today I think there’s a chance of getting 100% of it back in dividends over the next 10 years. With interest rates falling, there aren’t many opportunities like this.

Is it a stock to consider?

There are many reasons for uncertainty regarding the outlook for oil prices. The biggest threat right now would probably be OPEC increasing production at a time when demand is weak.

Investors who are bullish on oil may want to take a look at Chord Energy. US stocks can be expensive in general, but I think there are still excellent value propositions here.