Oil Majors Still Offer Good Value, Fund Manager Says

It's hard to argue that the stock market is dirt cheap when it trades at more than 20 times earnings after a 60 percent rally, but some individual stocks hold good value. Tim Guinness, chief investment officer of Guinness Atkinson Asset Management in London, makes a reasonable case for regarding some of the oil majors as bargains.

The price of crude oil has risen for months and remains near its 2009 peak of about $80 a barrel, yet oil stocks have been so-so performers and their valuations are about half of the level of the broad market, Guinness pointed out.

"They look pretty cheap, so fill your boots," he advised MoneyWatch readers. He especially likes Chevron, ConocoPhillips and Marathon.

"There has been a good recovery in the oil price, and there's absolutely no reason to think it's going to collapse back from here," Guinness said. "It's highly likely to average $70 or better for the next two to three years."

The ability of the OPEC cartel to cut production if prices soften should put a floor under crude at about $50, in his view. That, in turn, would support his favored stocks.

"I can see 30 percent up side [in oil stocks] as the market gets more comfortable with my scenario," he said. "That makes them a better bet than the S&P 500."

One wager that he would decline to make is on Exxon Mobil, which trades at a richer valuation than its peers.

"Exxon is a boring, overpriced super-major," Guinness remarked. "As confidence seeps back into the market, the more lowly [valued] companies will come back."