Oil stocks have been sleepy, but CNOOC is on the rise lately

CNOOC  (CEO ), the China National Offshore Oil Corporation, is down 6% year-to-date in 2013. But  more recently, CNOOC is up over 25% in the last three months and could be your best stock to buy both in China and in the oil stocks sector right now.

For starters, remember that CNOOC is naturally going to get a boost thanks to its $15.1 billion takeover of Canadas Nexen  that was announced last year, diversifying this oil stocks operations not just geographically but also into more natural gas operations.

And this isnt just good for the balance sheet its also a practical boon for investors as CNOOC stock will start trading on Toronto exchanges as part of the deal.

Also, CNOOC stock feels like a big bargain given the negativity baked into shares. Consider that CNOOC has a forward P/E of just 7.8 based on 2014 EPS projections, compared with a P/E of over 10 for oil stocks  Chevron  (CVX ) and over 11 for Exxon Mobil  (XOM ). Even compared with domestic peers its cheap, with PetroChina  (PTR ) trading at an earnings multiple of about 9 based on fiscal 2014 earnings forecast.

CNOOC Benefits Outweigh Risks

Yes, CNOOC is exposed to the same serious headwinds to growth in China. But though China GDP is under pressure, the growth is still there just at a slower rate. CNOOC will still have a big role to play in oil exploration and production since energy demand in China is ever-growing, too, even if the rate isnt as impressive as in years past.

And in the meantime you get a nice dividend. CNOOC pays 3.1% currently, significantly higher than oil stocks like Chevron and Exxon, and its payouts are about 22% of future earnings meaning that the dividend will only keep rising.

Of course, the bad news for new money is that CNOOC just went ex-dividend at the beginning of September and the twice-yearly cycle means you wont get paid for a while. But dont let the dividend alone push you into this darling among oil stocks; look at the numbers, and consider the upside if we get a cyclical recovery to boost energy demand worldwide.

All oil stocks will get a lift in this scenario, but CNOOC is the cheapest of the bunch and thus the best buy if youre looking at energy plays now.

And by the way, as the China National Offshore Oil Corporation, CNOOC enjoys the blessing of Beijing so it’s hard to imagine serious competition or regulation upending the business.

It all adds up to at worst stability in CNOOC and at best upside to both shares and dividends.

Related Reading on CNOOC

Jeff Reeves  is the editor of InvestorPlace.com and the author of  The Frugal Investor’s Guide to Finding Great Stocks.  Write him at  editor@investorplace.com  or follow him on Twitter via  @JeffReevesIP . As of this writing, he did not own a position in any of the stocks named here.