Undervalued Energy Stocks During the Iran War 2026: A Graham Number Analysis

Oil is trading at $110 a barrel. The Strait of Hormuz — the chokepoint through which roughly 20% of the world's seaborne oil flows — is under severe geopolitical stress following the outbreak of the Iran War in early 2026. Energy stocks have surged 50–90% year-to-date. Every pundit on TV is calling energy the "must-own" sector.

So here's the contrarian question every value investor should be asking: after this massive run-up, are any of these stocks actually cheap?

To find out, we ran the numbers through one of the most time-tested filters in investing: Benjamin Graham's Graham Number. Here's what we found — and it might surprise you.

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Why Energy Is Suddenly Front-Page News Again

For most of 2023–2025, energy stocks were a bore. Oil prices ranged from $70–$85, margins compressed, and Wall Street moved on to AI and semiconductors. Then came the Iran War.

The conflict escalated in early 2026, and Iran's threats against Hormuz Strait shipping lanes sent crude oil spiking. Today, Brent crude sits above $110/bbl — a level not seen since the 2022 post-pandemic surge. The geopolitical premium baked into oil prices is real and likely to persist as long as hostilities continue.

This is the kind of macro event that changes the earnings math for oil majors in a hurry. A company like ExxonMobil earned roughly $6.70 per share when oil averaged in the $70s during FY2025. With oil sustained at $110, that EPS number could jump 30–50% in 2026. The question is whether current stock prices already price in all of that upside — or whether there's still value left on the table.

That's exactly what the Graham Number helps us figure out.

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What Is the Graham Number?

Benjamin Graham — Warren Buffett's mentor and the father of value investing — developed a simple formula to estimate the maximum price a defensive investor should pay for a stock. It uses just two inputs:

• Earnings Per Share (EPS) — what the company actually earns for shareholders
• Book Value Per Share (BVPS) — the net asset value of the company on a per-share basis

The Formula:

Graham Number = √(22.5 × EPS × BVPS)

The constant 22.5 comes from Graham's rule of thumb that a stock shouldn't trade at more than 15× earnings OR 1.5× book value. Multiply those two limits together: 15 × 1.5 = 22.5.

If a stock trades below its Graham Number, it offers a margin of safety — it's potentially undervalued. If it trades above, you're paying a premium over intrinsic value.

For our analysis, we used:

• FY2025 reported EPS (most recent full fiscal year, source: StockAnalysis.com)
• FY2025 Book Value Per Share (same source)
• Current stock prices as of March 27, 2026

We also calculated a 3-year average EPS (FY2023–FY2025) to smooth out commodity price volatility — exactly as Graham himself recommended for cyclical businesses.

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The 5 Energy Stocks Analyzed

1. ExxonMobil (XOM)

Price (Mar 27, 2026): $170.99

| Metric | Value | |--------|-------| | EPS (FY2025) | $6.70 | | 3-Year Avg EPS (FY23–25) | $7.81 | | Book Value Per Share | $60.25 | | Graham Number (FY2025 EPS) | $95.31 | | Graham Number (3-yr avg EPS) | $102.90 | | Premium to Graham Number | 79% / 66% | | Forward P/E | 20.1× | | YTD Return | +50.5% |

Verdict: Fails Graham's test.

ExxonMobil is the world's largest publicly traded oil company — and at $171, it's trading nearly 80% above its single-year Graham Number. Even smoothing earnings over three years, the stock is 66% above intrinsic value by Graham's measure.

This doesn't mean XOM is a bad company. The Pioneer Natural Resources acquisition added ~600,000 barrels/day of low-cost Permian production, and the balance sheet is fortress-strong ($259B in book equity). But at current prices, you're paying a substantial premium for quality and geopolitical momentum. Graham would not be buying here.

The honest take: XOM is a great company at a full price. Hold if you own it. New buyers are speculating on oil staying above $100, not buying value.

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2. Chevron (CVX)

Price (Mar 27, 2026): $211.15

| Metric | Value | |--------|-------| | EPS (FY2025) | $6.63 | | 3-Year Avg EPS (FY23–25) | $9.24 | | Book Value Per Share | $100.46 | | Graham Number (FY2025 EPS) | $122.41 | | Graham Number (3-yr avg EPS) | $144.51 | | Premium to Graham Number | 72% / 46% | | Forward P/E | 23.4× | | YTD Return | +56.7% |

Verdict: Fails Graham's test, but less badly than XOM.

Chevron's $100+ book value per share is impressive — a reflection of the Hess acquisition and decades of capital accumulation. Using the 3-year average EPS (which smooths out the higher-earnings years of 2023–2024), the Graham Number rises to $144.51. CVX is trading 46% above that — expensive, but less stretched than ExxonMobil relative to its asset base.

The Forward P/E of 23.4× is high for an oil company. Analysts expect earnings to improve somewhat in 2026 on higher oil prices, but CVX's Kazakhstan operations (Tengizchevroil ramp-up) have been slower than expected. Capital returns via buybacks are strong but already priced in.

The honest take: CVX is better value than XOM, but "better" is relative. Still trading at a meaningful premium to Graham's definition of fair value.

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3. ConocoPhillips (COP)

Price (Mar 27, 2026): $133.80

| Metric | Value | |--------|-------| | EPS (FY2025) | $6.35 | | 3-Year Avg EPS (FY23–25) | $7.74 | | Book Value Per Share | $51.45 | | Graham Number (FY2025 EPS) | $85.74 | | Graham Number (3-yr avg EPS) | $94.66 | | Premium to Graham Number | 56% / 41% | | Forward P/E | ~18× (est.) | | YTD Return | ~35% (est.) |

Verdict: Fails Graham's test — but is the second-closest among the Big Five.

ConocoPhillips is the purest-play upstream E&P among the majors, meaning it benefits directly from higher oil prices with minimal downstream refining exposure. The Marathon Oil acquisition in late 2024 added significant low-breakeven assets.

At $133.80, COP is 41% above its 3-year Graham Number — expensive on an absolute basis, but the closest among the integrated majors to intrinsic value. COP CEO Ryan Lance recently told CNBC that the company's financial position is "as strong as it's ever been" given the Hormuz-driven oil price environment.

With oil at $110 and COP's breakeven around $40/barrel, free cash flow per share of $5.78 (FY2025) is almost certainly understated for 2026. Forward earnings estimates could push the Graham Number toward $110–$120.

The honest take: COP is the best value among the integrated majors. If you're buying the Iran war oil trade with a value lens, this is your candidate.

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4. Valero Energy (VLO)

Price (Mar 27, 2026): $254.32

| Metric | Value | |--------|-------| | EPS (FY2025) | $7.57 | | 3-Year Avg EPS (FY23–25) | $13.69 | | Book Value Per Share | $76.78 | | Graham Number (FY2025 EPS) | $114.34 | | Graham Number (3-yr avg EPS) | $153.81 | | Premium to Graham Number | 122% / 65% | | Forward P/E | 14.7× | | YTD Return | +91.9% |

Verdict: Fails trailing Graham's test — but the forward story is compelling.

Valero is America's largest independent petroleum refiner. On trailing EPS alone, it looks wildly expensive — trading at 122% above its single-year Graham Number and 65% above the 3-year smoothed figure. This is the biggest premium in our analysis.

But here's the twist: VLO has a Forward P/E of just 14.7×, implying analysts expect FY2026 EPS of approximately $17.29 — more than double FY2025's $7.57.

Why? Refiners benefit from "crack spreads" — the margin between crude oil input and refined product output (gasoline, diesel, jet fuel). When crude surges on geopolitical supply fears but downstream demand remains robust, crack spreads can widen dramatically. Valero's Gulf Coast operations are positioned to capture elevated refining margins as long as Hormuz tensions persist.

Plugging $17.29 forward EPS into the Graham formula: Graham Number = $172.79 — still 47% below current price. But if oil sustains $110+ through year-end and crack spreads hold, VLO's forward earnings story is real.

The honest take: VLO is a momentum play with a value twist in the forward year. It's not a classic Graham bargain, but it may be the most leveraged to sustained high oil prices among our five stocks.

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5. EOG Resources (EOG) ⭐ Closest to Graham Fair Value

Price (Mar 27, 2026): $149.56

| Metric | Value | |--------|-------| | EPS (FY2025) | $9.12 | | 3-Year Avg EPS (FY23–25) | $11.12 | | Book Value Per Share | $54.64 | | Graham Number (FY2025 EPS) | $105.88 | | Graham Number (3-yr avg EPS) | $116.93 | | Premium to Graham Number | 41% / 28% | | Forward P/E | 12.8× | | YTD Return | +16.6% |

Verdict: Fails strict Graham's test — but is the CLOSEST of all five.

EOG Resources is the standout in this analysis. Among the five stocks screened, EOG trades the closest to its Graham Number — just 28% above its 3-year smoothed intrinsic value. Compared to XOM's 66% premium or VLO's 65%, that's a meaningful distinction.

What makes EOG different? Three things:

1. Best-in-class cost structure. EOG's average wellhead breakeven in its core Permian, Eagle Ford, and Delaware Basin acreage is around $35–$40/barrel. With oil at $110, it's printing money.

2. Disciplined capital returns. EOG paid $3.99/share in dividends in FY2025 and has a track record of special dividends. Management doesn't chase growth at the expense of returns.

3. Relatively modest YTD runup. EOG is up just 16.6% YTD — far less than the 50–90% surge in the integrated majors. This suggests the market hasn't fully priced in EOG's leverage to $110 oil, creating a relative value opportunity.

With Forward P/E of 12.8× and forward EPS estimates near $11.69, EOG's forward Graham Number climbs to approximately $119.90 — still below the current price, but the gap is narrowing quickly.

If oil holds above $100 through mid-2026 (a reasonable base case given ongoing Hormuz tensions), EOG's actual 2026 EPS could come in above $12, pushing the Graham Number above $120 and compressing the premium further.

The honest take: EOG is the only stock in this group that a strict Graham disciple would even consider in the current environment. It's not a screaming buy at 28% above Graham fair value — but it's reasonably priced relative to peers, and leveraged to the oil macro.

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The Summary Table

| Stock | Price | Graham # (TTM) | Graham # (3-yr) | Premium (3-yr) | Pass/Fail | |-------|-------|----------------|-----------------|----------------|-----------| | XOM | $170.99 | $95.31 | $102.90 | +66% | ❌ Fail | | CVX | $211.15 | $122.41 | $144.51 | +46% | ❌ Fail | | COP | $133.80 | $85.74 | $94.66 | +41% | ❌ Fail | | VLO | $254.32 | $114.34 | $153.81 | +65% | ❌ Fail | | EOG | $149.56 | $105.88 | $116.93 | +28% | ❌ Fail* |

*EOG is the closest — by a significant margin — but none pass the strict Graham test at current prices.

The bottom line: None of these five energy stocks passes the strict Graham Number test right now. The massive rally driven by Iran/Hormuz oil prices has pushed the entire sector into premium territory. This is exactly what happens in commodity supercycles — prices overshoot fundamentals in both directions.

However, if you're investing in the energy sector, EOG and COP offer the best margin of safety within a frothy group. They trade at lower premiums to Graham fair value, have strong free cash flow at $110 oil, and carry less balance-sheet risk than some peers.

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The Risks You Can't Ignore

1. Oil price reversal. The entire bullish thesis for energy stocks rests on sustained high oil prices. If Iran/Hormuz tensions de-escalate faster than expected — through diplomacy, ceasefire, or alternative shipping routes — oil could fall back to $75–$85 quickly. That would compress both earnings and stock prices sharply.

2. Demand destruction. At $110/barrel, economies start adjusting. Airlines cancel routes. Manufacturers find alternatives. Consumers drive less. Sustained high oil prices carry the seeds of their own reversal.

3. Geopolitical escalation overshoot. If the Iran conflict broadens beyond current scope — into direct US military engagement or a regional war — broader market risk-off could hit all stocks, including energy.

4. Book value erosion. Energy companies are capital-intensive. Write-downs on oil assets, higher decommissioning costs, or poor acquisition decisions can destroy book value rapidly, making the Graham Number calculation less reliable.

5. Graham Number limitations for E&Ps. Graham designed his framework for relatively stable industrial businesses. Oil companies are inherently cyclical — their EPS and book value swing wildly with commodity prices. The 3-year average EPS approach helps, but a true Graham-style analysis should normalize earnings across a full commodity cycle (7–10 years), which would likely show even lower intrinsic values.

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How to Screen Energy Stocks Yourself

The five stocks in this analysis are just the starting point. There are dozens of smaller E&P companies, midstream operators, and oilfield service firms that might offer better Graham Number value at current prices — particularly companies that haven't surged as dramatically in the Iran war rally.

Want to run your own Graham Number calculations on any stock? Head to valueofstock.com/calculator — our free Graham Number calculator lets you plug in any EPS and book value to instantly see the intrinsic value estimate and margin of safety. No spreadsheet required.

In a market where the Iran war is making energy stocks look exciting, the disciplined investor's job is to stay grounded in numbers. The Graham Number isn't perfect — no single formula is — but it forces you to ask the right question: am I buying value, or am I buying a story?

Right now, for most major energy stocks, the answer is: you're mostly buying the story.

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Data sourced from StockAnalysis.com. All prices as of March 27, 2026. This article is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Always do your own due diligence before investing.