Equity market volatility is one of the main reasons of concern for investors as it makes the ‘Buy-Sell’ decision difficult. The energy sector has also fallen prey to this volatility and we have seen several ups and downs of late.

We have seen crude prices gaining over 5% in a day, an indication of an improvement in the global market scenario. On the very next day, however, prices have receded the same amount or even greater. Thus, predicting the market has become quite an uphill task.

It is in times like these that value investors are likely to find pockets of opportunities in the beleaguered energy space. Prices are more volatile than the intrinsic value of a stock. Market movements may result in mispriced securities, even for those with sound fundamentals.

While value stocks may not offer lucrative growth opportunities, they offer stable performance, even in times of such extreme volatility. These stocks are generally unappreciated or trade at a bargain price. Nevertheless, these very stocks could fetch higher returns on market correction.

Promising dividend yields add further stability. While we have no control on the macro activities that dominate a stock’s price, dividends add some certainty to the return on investment.

Why the Energy Sector?

Crude prices have nearly halved since last year and many of the energy stocks have shared a similar fate. However, the worst seems to be over and things may start moving north from here. As such, it may be a wise move now to make a selective investment decision, considering appropriate risk-reward trade offs.  

Investors may find promising opportunities in this space as many of the energy stocks continue to remain fundamentally strong, despite a fall in their respective share prices.

Also, the pricing pressure is anticipated to ease out in the latter half of this year and as the next year unfolds. This bears strong long-term potential.

Identifying the Right Stock

A value stock may have a high dividend yield, low price-to-book ratio, low price-to-earnings ratio or a low price-to-sales ratio. However, it might be difficult for one to look at each parameter and compare with the peer group for an analysis on whether the stock is attractive from the value perspective. To make the task easy, Zacks has designed the new Style Score System.

We have shortlisted 4 value stocks with solid dividend yields. Each of these stocks has a Value Score of ‘A’ or ‘B,’ a dividend yield higher than 3% and a Zacks Rank #1 (Strong Buy) or #2 (Buy).

4 Value Stocks to Buy Now

We suggest CVR Refining, LP (CVRR- Snapshot Report), an independent petroleum refiner and marketer of transportation fuels. Lower input-cost refineries and strong refining margins give the stock potential for continued growth. Being a refiner, the company is likely to continue to benefit from the weak crude pricing environment. This Zacks Rank #1 stock has a Value Score ‘A.’

Dividend Yield: 15.82%
Forward P/E: 7.52 (compared with the industry average of 20.30)

Another strong value stock contender is Ocean Rig UDW Inc. (ORIG - Snapshot Report). It is an international offshore drilling contractor that operates ultra-deepwater (UDW) drilling rigs. The stock sports a Zacks Rank #1 has a Value Score ‘A’. Notably, the company has surpassed earnings estimates in three of the trailing four quarters. Northward estimate revisions suggest better results ahead.

Dividend Yield: 16.14%
Forward P/E: 3.16

PBF Energy Inc. (PBF - Snapshot Report), which is engaged in the refining and supply of petroleum products, is another solid bet. The company holds a Value Score of “A” and a Zacks Rank #2. The company has surpassed the Zacks Consensus Estimate for earnings in three of the trailing four quarters and also has solid long-term growth potential.  

Dividend Yield: 3.86%
Forward P/E: 8.07 (compared with industry average of 20.30)

Another Zacks Rank #2 stock that investors may look forward to is Repsol, S.A. (REPYY - Snapshot Report), which has a Value Score of ‘A.’ Repsol is engaged in both upstream and downstream activities around the world. The integrated nature of the company makes it less susceptible to commodity price fluctuations.

Dividend Yield: 5.05%
Forward P/E: 12.94 (compared with industry average of 15.50)

Looking Forward

Volatile markets pose investment challenges but they also provide opportunities for the intelligent investor. Betting on the above-mentioned high dividend paying stocks should result in steady stream of income for your portfolio.  

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