Have you ever watched a sector get completely hammered by falling commodity prices, only to spot a few standout companies that suddenly look dirt cheap? That’s exactly what’s happening in energy right now. With crude oil dropping sharply this year, a lot of investors have fled the space—but sometimes that’s precisely when the best opportunities show up.
I’ve been digging through the oil and gas names lately, and one drilling stock in particular keeps jumping out at me. It’s got top-tier assets, impressively low costs, and the kind of cash flow generation that makes you wonder why the market is sleeping on it. In my view, this could be one of those classic cases where short-term pessimism creates long-term value.
Why Energy Stocks Feel Like the Forgotten Corner of the Market
Let’s start with the big picture. Crude oil has taken a beating in 2025. Prices that were comfortably above $70 a barrel back in January have slid all the way down to the mid-$50s. Great news if you’re filling up your tank, but not so great if you own energy stocks.
The broader energy sector has managed only modest gains this year—nowhere near the double-digit returns we’ve seen in the S&P 500 or the explosive moves in tech. It’s almost like investors have decided oil and gas are yesterday’s story. Yet global energy demand keeps climbing, and renewables, for all their progress, aren’t ready to shoulder the entire load anytime soon.
That disconnect between fundamentals and sentiment often creates pockets of real value. And right now, some exploration and production companies are trading at valuations that feel almost too good to ignore.
The Power of Mean Reversion in Beaten-Down Sectors
There’s an old strategy called the “Dogs of the Dow” that basically bets on underperforming blue-chip stocks bouncing back. The idea is simple: when quality companies lag, their yields rise and their multiples compress—setting the stage for potential recovery.
You don’t have to limit that thinking to the Dow. In fact, applying a similar lens to the energy patch right now feels pretty timely. Sentiment is sour, prices are low, and a handful of operators with strong balance sheets and efficient operations are suddenly looking remarkably attractive.
When the crowd runs away from a sector, that’s often your signal to start looking closer.
Of course, nothing is guaranteed in commodities. Oil can stay cheap longer than you expect. But for patient investors, these setups can pay off handsomely when the cycle eventually turns.
Spotting the Standout: A Closer Look at Coterra Energy
One name that keeps catching my eye is Coterra Energy. Born from the 2021 merger of two solid players—Cabot Oil & Gas and Cimarex—this Houston-based operator has prime acreage across three major U.S. basins: the Permian, Marcellus, and Anadarko.
What impresses me most isn’t just the footprint; it’s the efficiency. When they reported third-quarter results, the company actually exceeded production guidance across oil, natural gas, and liquids. Management responded by raising full-year expectations—a move that speaks volumes about operational strength.
But the real story, in my opinion, is the cost structure. Coterra boasts a breakeven price around $41 per barrel—one of the lowest among its peer group. That kind of margin of safety matters enormously when oil trades in the $50s.
- Breakeven well below current spot prices
- Consistent outperformance on production targets
- Diverse exposure across premium basins
- Strong balance sheet supporting shareholder returns
These aren’t flashy traits, but they’re exactly the kind of quiet strengths that compound over time.
Cash Flow Machine in the Making
Let’s talk numbers, because this is where things get interesting. Analysts are projecting close to $2.4 billion in free cash flow for 2026. That’s real money—enough to fund a healthy dividend (currently yielding north of 3%) and keep a substantial stock repurchase program rolling.
Speaking of buybacks, the existing authorization still has over a billion dollars left. At today’s market cap, that represents more than 5% of the outstanding shares. Companies rarely let that kind of firepower sit idle forever.
Add in expected revenue growth around 6% and adjusted earnings growth near 15%, and you start to see why the current valuation feels out of whack.
Valuation Metrics That Raise Eyebrows
Here’s a quick snapshot of where the stock sits today:
| Metric | Coterra | Peer Average |
| Forward P/E | ~10x | Higher |
| 2026 FCF Yield | ~10% | Lower |
| Dividend Yield | ~3.4% | Variable |
| Buyback Capacity | >5% of market cap | Varies |
A 10% projected free cash flow yield is nothing to sneeze at—especially for a company with a proven ability to keep costs in check. In my experience, when you find that combination in a cyclical industry trading at a single-digit earnings multiple, it’s worth paying attention.
The Dickensian Nature of Oil Investing
Oil has always been a boom-or-bust business. One year you’re swimming in cash, the next you’re scrambling to preserve it. That volatility scares off a lot of investors, which is precisely why the rewards can be substantial for those willing to stay the course.
Perhaps the most interesting aspect here is how Coterra seems built for both sides of the cycle. Low breakevens protect the downside, while high-quality inventory and disciplined capital allocation position it to capitalize when prices recover.
Global oil demand isn’t going away. Emerging markets continue to industrialize, air travel keeps growing, and petrochemical needs remain robust. Sure, the long-term transition to cleaner energy is real—but it’s a decades-long process, not an overnight switch.
Straight Stock Ownership: A Solid Starting Point
If you’re looking for a straightforward way to play this idea, simply buying the shares makes sense. You collect a respectable dividend while waiting for either a commodity rebound or continued capital returns to drive the price higher.
That said, the current yield might not excite everyone—especially income-focused investors used to higher payouts in other sectors. Fortunately, there’s a classic options strategy that can juice the return without taking on wildly more risk.
Enhancing Yield with a Buy-Write Strategy
One approach I particularly like here is the covered call, or “buy-write.” You purchase the stock and simultaneously sell out-of-the-money call options against it. In exchange for capping some upside, you collect premium that effectively boosts your dividend yield.
For example, selling calls around the 27 strike (depending on current pricing and expiration) could add several percentage points of annualized income. If the stock stays below that level at expiration, you keep the premium and can repeat the process. If it gets called away, you still exit at a higher price than today plus the premium received—a win either way.
- Buy 100 shares of the stock
- Sell 1 call contract (covering those 100 shares) at a strike above the current price
- Collect premium upfront—think of it as instant yield
- Repeat monthly or quarterly as desired
It’s not a get-rich-quick scheme, but for a stock you’re happy owning long-term, it’s a disciplined way to generate extra cash flow while you wait for the broader thesis to play out.
Covered calls turn patience into paycheck.
Just remember: options involve risks, and this strategy does limit upside if the stock makes a big move higher. Always size positions appropriately and understand the trade-offs.
Risks You Can’t Ignore
No investment is risk-free, and energy certainly has its share. Oil prices could stay depressed longer than expected—perhaps due to oversupply, weaker global growth, or accelerated renewable adoption. Geopolitical events can swing prices wildly in either direction.
Company-specific risks exist too. Execution missteps, reserve revisions, or balance sheet strain in a prolonged downturn could hurt performance. That’s why diversification and position sizing remain crucial.
Still, when a company trades at these levels with the kind of underlying strengths Coterra shows, the risk/reward skew starts to look compelling.
Final Thoughts: Opportunity in the Overlooked
Markets have a way of overreacting—both to the upside and the downside. Right now, the energy sector feels like it’s firmly in the latter camp. Yet beneath the gloom, certain operators are quietly building real value through efficient operations and shareholder-friendly policies.
Coterra Energy strikes me as one of those names worth owning—either outright for the dividend and buyback potential, or via a covered call overlay for enhanced income. The setup isn’t perfect, and timing commodity cycles is notoriously tricky, but the margin of safety here feels substantial.
In a world chasing the next hot growth story, sometimes the best opportunities hide in the sectors everyone else is ignoring. Maybe it’s time to take a closer look at this overlooked oil driller.
(Note: This article reflects personal analysis and opinion. All investments carry risk. Options trading involves substantial risk and is not suitable for all investors. Consult a financial advisor before making any decisions.)
