Energy prices are weak. What better time to go stock-shopping in the oil patch? Murphy Oil, trading at 34 1/4 on the Big Board, is the choice of some savvy pros. The oil and gas exploration and production company is light on debt, heavy on cash--and its $1.20 dividend provides a 3.5% return while waiting for the upturn.

"It's the cheapest stock in a cheap industry," says Kenneth Hackel of Systematic Investment Management, which buys stocks based on their cash flows. Murphy sells for 11 times free cash flow--which Hackel defines as the most cash a company can distribute without impairing its growth. The S&P industrials sell at 23 times free cash flow; domestic oil companies, 14.1.

Why so cheap? For starters, the company lost 28 a share last year after earnings of $3.36 in 1990. Even the highest 1992 estimate, $2.30 a share, falls far short of that. "The company has no pizzazz, so Wall Street ignores it," says Mark H. Madden of Pioneering Management, which holds 1 million shares. Madden thinks that when the economy revives, Murphy's profits will rebound sharply. The company has been upgrading its refineries to produce more profitable gasoline and jet fuel and less heavy oil and asphalt.

Bill McAdams, whose Massachusetts Capital Development Fund owns about 500,000 shares, suspects that the company may repurchase stock to offset some of the 9.7 million shares issued last year to buy out the minority shareholder in its ODECO subsidiary. And the money's no sweat. Murphy could use some of the $372 million it got last month from the sale of ODECO's money-losing contract-drilling operation.

"They could buy others' reserves, or it may be the cheapest reserves are their own, and they buy in their stock," says George Wyper, chief investment officer for Fund American Enterprises, which has 2.9 million shares.

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