Serious Money: Cheapest place in the world to find oil

Anadarko Petroleum (NYSE: APC) is one of my picks for this year, see: Chasing Value: 9 picks for 2009 -- APC, GE, ISRG, WFC and more that is up more than 40%. I recommended the stock at $34 per share but it is still a bargain around $49. If you look at fundamentals, it is still trading below book value at 0.97 with a trailing P/E of 5.69 and a P/S of 1.23. These are bargain basement figures.

Besides being a play on oil reserves in North America, APC has huge natural gas reserves as well. Natural gas is trading so low that it is highly probable that it will jump as inventory is depleted and higher oil prices start to create some pain in the marketplace. If you are not convinced that APC is a buy, or should at least be on your watch list yet, then you might also consider that it has net profit margins over 22%!

Among the companies that I think are worth looking at, and might also have an interest in Anadarko, is Chevron Corp (NYSE: CVX), itself a bargain right now with a book value of 1.54. This alone might not be enough to represent a steal, but combined with a P/E of 6.34 and a P/S of 0.59, ROE over 29% and ROIC over 26% it is at the very least something to put on your watch list.

However, if you buy now the 3.58% yield should tide you over until the market recognizes the value here. One of the reasons I think that CVX should have an interest in acquiring APC is that it's net profit margin much lower at 9%, and depending on the good will premium upon the acquisition, APC would increase it's bottom line quickly.

Among foreign oil stocks I think everyone is watching is Petroleo Brasileiro SA (NYSE: PBR). It pops up regularly in business journals on and off the Internet. This Brazilian oil giant is just one more example of beaten down oil stocks. Even with the company's huge off shore oil discoveries in the billions of barrels of oil some say, making it the largest find in twenty years, the stock is trading at a trailing P/E of 5.86.

Like its competitors, it has a very low P/S of 0.90 and an attractive P/B of 1.24. PBR has a strong net profit margin falling in between the other two oil companies at 15%. I am not sure what the repercussions of PBR would be if it pursued APC, but I think this is not even a remote possibility given the significant task at hand of bringing its recent find to the market as soon as possible.

All three of these companies are a bargain in my eyes, and worthy of investor consideration. Anyone that thinks oil will be less expensive in the future is surely in the minority, and that means the majority of investors should get around to properly valuing these stocks in the long run. They all pay dividends and the upside potential seems far greater than the downside risk.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of APC.