AGNICO EAGLE vs. DEVON ENERGY - Which is a better investment?

Summary

This video explores whether Devon Energy (ticker: DVN) is a worthy investment, highlighting the current underinvestment in oil, the arbitrage opportunity in gas prices between the US and Europe, and the upcoming Mata Horn pipeline's impact on Devon's revenue. The presenter emphasizes Devon's strong financials, insider ownership, and valuation, comparing it favorably to a gold producer, suggesting Devon is significantly undervalued. With a PE ratio of 8.74 and a price-to-cash-flow ratio of 4.44, the video concludes with a strong buy recommendation, despite acknowledging the volatility and potential political risks associated with the oil and gas sector.

Takeaways

• 📈 Devon Energy (ticker: DVN) is under consideration for investment due to its trading on various exchanges and current market conditions.
• 💰 A lack of worldwide investment in oil is leading to high oil prices, which could benefit oil and gas companies like Devon.
• 🌍 The significant price difference between natural gas in Europe and the US, along with the construction of infrastructure to transport gas, could increase Devon's profitability.
• 🚀 The upcoming commissioning of the Wink to Webster pipeline will likely increase Devon's revenue by providing a market for surplus gas production.
• 💼 Devon is investing in its business to maintain or grow production, which is a positive sign for future profitability and cost reduction.
• 🤵 Insider ownership at Devon is substantial, indicating alignment with shareholder interests and a potential commitment to the company's success.
• 💸 Devon is currently trading at a low valuation, which could make it an attractive investment opportunity.
• 📉 Devon has a low tax rate compared to other industries, which can positively impact shareholder returns.
• 🔄 The company has been reducing its share count through buybacks, increasing the ownership percentage for existing shareholders.
• 💰 Devon is returning significant capital to shareholders through dividends and share buybacks, supported by a strong free cash flow.
• 🏦 Devon operates in a safe jurisdiction (USA), which reduces geopolitical risks compared to companies operating in multiple countries.

Q & A

What is the ticker symbol for Devon Energy in the US stock market?

Devon Energy trades under the ticker symbol DVN in the US stock market.

Why is there a lack of investment in the oil industry worldwide?

The oil industry, including state-run oil companies, is underinvesting, which is likely due to various factors such as market conditions, regulatory pressures, and shifts towards renewable energy sources.

What is the current price difference between natural gas in Europe and the US?

Currently, a million BTU of natural gas in Europe is selling for about $9, while the Henry Hub spot price for natural gas in the US is about $2 per million BTU, resulting in a $7 difference.

What is the significance of the Matterhorn pipeline for Devon Energy?

The Matterhorn pipeline, which is being built to transport gas from West Texas and East New Mexico to the Houston area, is significant for Devon Energy because it will allow them to sell excess gas at a higher price, thereby increasing their revenues. Devon is also a partial owner of the pipeline.

How is the US business and industry conversion to gas expected to benefit Devon Energy?

As businesses and industries in the US convert their operations to use gas due to its low cost, this creates extra demand for gas, which benefits Devon Energy, a significant producer of gas.

What potential political catalyst is mentioned in the script that could positively impact Devon Energy's share price?

A potential political catalyst mentioned is the possibility of Republicans winning in 2024, which could lead to higher valuations for US oil and gas producers in the market.

Why is Devon Energy's insider ownership considered a positive factor for investors?

Devon Energy's heavy insider ownership, with executives and directors owning shares equivalent to 10 times their annual salary plus bonuses, aligns management's interests with shareholders, potentially leading to better decision-making for the company's future.

What is Devon Energy's dividend policy in terms of allocating free cash flow?

Devon Energy's dividend policy involves allocating 30% of their free cash flow towards strengthening the balance sheet or paying down debt, and 70% towards a fixed dividend, a variable dividend, and share buybacks.

How has Devon Energy's share count changed in the last three years?

In the last three years, Devon Energy has retired about 6% of their outstanding shares, increasing the ownership stake of existing shareholders without the need to purchase additional shares.

How does Devon Energy's tax situation compare to that of a Canadian gold producer?

Devon Energy's average income tax rate is about 20%, which is lower compared to the 30% to 40% average income tax rate for a Canadian gold producer. Additionally, US investors in Devon Energy may benefit from tax advantages on dividends compared to those investing in Canadian companies.

What is the comparison between Devon Energy and Agnico Eagle Mines in terms of market cap and enterprise value?

Both Devon Energy and Agnico Eagle Mines have similar market caps of $29 billion and $32.6 billion respectively, and enterprise values of $34.5 billion and $34 billion respectively, indicating that investors are paying a comparable price for shares in both companies.

Why is Devon Energy considered to be a better investment compared to Agnico Eagle Mines based on the financial numbers presented?

Devon Energy has significantly higher revenues, gross profit, operating income, and net income compared to Agnico Eagle Mines, despite both companies having similar market caps and enterprise values. Devon also has a lower tax rate and has been growing its retained earnings, which can be reinvested into the business.

What is the current price-to-earnings ratio for Devon Energy, and how might it change with expected cost reductions in 2024?

The current price-to-earnings ratio for Devon Energy is 8.74. With expected cost reductions of about 10% in 2024, earnings are likely to increase, which could lower the price-to-earnings ratio if the stock price remains the same.

What is the risk level assigned to Devon Energy, and what factors contribute to this assessment?

The risk level assigned to Devon Energy is a four out of ten, considering factors such as the current good valuation, potential volatility in oil and gas stocks, and possible future political or tax-related risks.

What is the final verdict on Devon Energy as an investment according to the script?

The final verdict on Devon Energy as an investment is a 'strong buy', based on the company's incredible valuations, potential for good returns over a few years, and the positive factors discussed in the script.