Energy
Tuesday, August 2nd, 2022 8:02 am EDT
Jim Cramer said on Tuesday’s “Morning Meeting” that he rarely does this, but he’s advising investors who want to get into Devon Energy (DVN) to do so before the company’s post-earning conference call, which is set at 11 a.m. ET. The stock was down 3.5% in Tuesday morning trading. Cramer said, “Buy Devon now if you want income,” referring to the big dividend that the energy company offers. He’s also encouraged by the company’s strong quarterly results , which were out on Monday. In line with Jim’s commentary and following Monday’s earnings release, which in our view no way justifies the post-release selloff, we are upgrading shares of Devon Energy to a 1 rating , designated for stocks we would buy right here and now. The quarter reinforced the notion that management will continue to prioritize free cash flow generation and more importantly, return the bulk of that free cash flow to shareholders via a fixe- plus-variable dividend and share repurchase; the repurchases and variable portion of the dividend being tied directly to free cash flows. At $60 per share, the stock trades at roughly 6.5 times forward earnings. Moreover, the just-announced $1.55 per share fixed-plus-variable dividend payout amounts to an annualized dividend yield of 10.3%, and with $800 million left in the share repurchase authorization, as of the end of the second quarter, management has the capacity to buyback roughly 2% of shares outstanding, in essence returning over 12% shareholders. Given that the supply shortage supporting higher energy prices is a structural issue and the companies in the space have all come to a consensus that prioritizing shareholder returns is more beneficial than investing in production at all costs, we think now is the perfect time to step into the stock and look forward to hearing more from management once the conference call gets underway. Separately, we will be looking for a similar message later Tuesday, when Club names Pioneer Natural Resources (PXD) and Coterra Energy (CTRA) report their earnings results on Tuesday, after the closing bell. (Jim Cramer’s Charitable Trust is long DVN, PXD and CTRA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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