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Has oil really bottomed? Jim Cramer doesn't know how many other people are wondering, but he questions it himself.
There are plenty of analysts who believe that the combination of heavy production in Saudi Arabia, the return of the market in Iran, the increased production in Iraq and the lack of a decline in shale production in the U.S. all add up to a decline in oil prices in the short-term future.
"But the market is not stupid. Oil would have already been hit and hit hard from that parade of horribles. It hasn't," the "Mad Money" host said.
On the contrary, every time the price goes below $60 buyers rush in and take it back up. Cramer sees that there is always a perpetual bid in oil underneath that key level, and he is starting to wonder if there are cheaper oil stocks lingering out there that deserve to be bought.
So, how can an investor detect which oil stocks are undervalued?
Cramer devised his own method. He went back to where the oil patch stocks were tradingm back when crude was scraping the bottom of the barrel in the low $40s, in mid-March.
He chose to target the major independent oil-and-gas companies, because those are the ones most likely to be acquired. There is a large disparity between where these stocks trade now and back then, and Wall Street may have figured out that it makes more sense to do a deal than to drill for actual oil.
The first big dog is ConocoPhillips, which is a $77 billion company with shares that trade at almost the exact same price as when oil was $18 lower. This is one company that Cramer thinks could represent a huge bargain for Chevron or Exxon.
Or how about EOG Resources? It is currently trading only slightly above where it was when oil bottomed. A lot of investors have turned against EOG because they think it did not deliver the production growth expected.
Cramer found this to be completely ridiculous. In his perspective, EOG didn't want to have that much production growth! Unlike many other oil companies, it is not strained for cash. Thus, it didn't need the spare cash flow, so it didn't pump. It chose to save oil in the ground and reserve it for a time when prices are higher.
But the biggest winner here is Marathon Oil, which has huge assets and Cramer thinks is totally misvalued. The stock currently trades at just $26, which is almost the exact same price it was back in the dark days of oil.
"I think it could be easily acquired for well below its peak last year of $41, and even pretty far down from its recent high of $31 last month. I bet a buyer could snag Marathon Oil for just $33 to $34 a share," Cramer added.
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There is the possibility that oil could go lower and bring these stocks down with it. But Cramer knows that these companies found buyers back when oil was much lower.
Could it be hard for them to find a buyer when crude hovers at $60? Probably not, and Cramer thinks other oil companies are eyeing them, too.