Undervalued Energy Stocks in 2026: Contrarian Value Investing in the Energy Transition

The energy sector in late 2025 is trading at a premium to historical averages, with a Price-to-Earnings (P/E) ratio of 18.3x compared to its 3-year average of 12.7x according to market analysis. This re-rating reflects optimism about the sector's resilience amid macroeconomic uncertainty and the accelerating energy transition. Yet, within this broader context, certain energy stocks appear significantly undervalued-offering contrarian investors opportunities to capitalize on companies that are not only adapting to the transition but also strengthening their competitive positions through innovation and operational discipline.

The Case for Contrarian Value Investing in Energy

Contrarian value investing thrives on identifying mispricings in the market, often driven by short-term pessimism or overlooked fundamentals. In the energy sector, the shift toward decarbonization has created a bifurcation: while green energy stocks face valuation headwinds due to policy shifts and high discount rates, traditional energy firms with robust transition strategies are being undervalued despite strong cash flows and strategic reinvention. This divergence presents a compelling case for investors willing to look beyond the headlines.

Three names stand out in this landscape: Occidental Petroleum, Devon Energy, and EOG Resources. Each trades at a material discount to its intrinsic or fair value estimates, while advancing energy transition initiatives that position them for long-term growth.

Occidental Petroleum: Rebalancing for a Low-Carbon Future

Occidental Petroleum (OXY) is trading 38% below its fair value estimate of $64 per share, a discount that underestimates its strategic transformation. The company has pivoted aggressively toward carbon management through its Oxy Low Carbon Ventures, investing heavily in carbon capture, utilization, and storage (CCUS) technologies. This shift is not theoretical: in 2024, Occidental sold its chemical business to Berkshire Hathaway for $9.7 billion, a move that reduced debt and refocused resources on core oil and gas operations and low-carbon projects.

The acquisition of CrownRock in 2024 further enhances production efficiency in the Midland Basin, a critical asset for maintaining profitability in a low-growth oil environment. By aligning its capital allocation with both shareholder returns and decarbonization goals, Occidental is bridging the gap between traditional energy and the transition, making it a rare hybrid in the sector.

Devon Energy: Shale Efficiency Meets Geothermal Innovation

Devon Energy (DVN) trades at a 32% discount to its fair value, despite being one of the lowest-cost producers in U.S. shale. Its strategic focus on the Delaware Basin has driven profitability, but its energy transition efforts are equally noteworthy. Devon has set ambitious targets to reduce greenhouse gas (GHG) emissions intensity by 26% and methane intensity by 45% by 2024, with longer-term goals of net-zero Scope 1 and 2 emissions by 2050.

What sets Devon apart is its bold investment in next-generation geothermal technology. In February 2024, the company led a $244 million funding round for Fervo Energy, a geothermal startup applying hydraulic fracturing techniques to unlock scalable, clean power. This initiative not only diversifies Devon's energy portfolio but also positions it to supply low-carbon energy to high-demand sectors like AI data centers. By integrating geothermal with its core operations, Devon is future-proofing its business model.

EOG Resources: Operational Excellence and Transition Readiness

EOG Resources (EOG) is trading at a 25% discount to its fair value estimate, despite being a top performer in U.S. exploration and production. The company's 20.8% free cash flow (FCF) margin underscores its operational efficiency, but its transition strategy is equally compelling. EOG joined the Oil and Gas Methane Partnership 2.0 (OGMP 2.0) in 2023, committing to transparent methane reporting.

In 2025, EOG announced a $6.2 billion capital plan to grow oil production by 3% and total production by 6%, emphasizing disciplined investment. Its acquisition of Encino Acquisition Partners added 675,000 net acres in the Utica Shale, enhancing production capacity while reducing well costs through supply chain innovations. EOG is also investing in land conservation leases and artificial lift automation to minimize environmental impact as detailed in its sustainability report. These initiatives reflect a balanced approach to growth and sustainability.

Risks and the Road Ahead

The energy transition is not without risks. The green energy sector's median EV/Revenue multiple of 5.7x in Q4 2024 highlights the challenges posed by policy shifts and high interest rates. However, the companies discussed here are not passive participants in this transition-they are active architects of it. Their undervaluation reflects market skepticism about the sector's ability to adapt, but their strategies suggest otherwise.

For contrarian investors, the key is to distinguish between temporary disfavor and enduring mispricing. Occidental, Devon, and EOG are not merely "old economy" stocks; they are companies reinventing themselves for a world where energy demand remains robust, but decarbonization is non-negotiable.

Conclusion

The energy transition is reshaping the sector, but it is also creating mispricings that value investors can exploit. Occidental, Devon, and EOG exemplify how traditional energy firms can evolve into transition leaders by combining operational discipline with innovation. Their current discounts to intrinsic value offer a margin of safety, while their strategic initiatives provide a path to long-term outperformance. For investors with a contrarian mindset and a multi-year horizon, these stocks represent compelling opportunities in a sector poised for reinvention.