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5 Beaten-Down Energy Stocks to Buy for a Turnaround in 2021
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One of the sectors worst hit by the coronavirus pandemic, energy, is finally having something to cheer about.
Not long ago, the contagion caused energy stocks to sink along with crude prices. The commodity was ravaged by a perfect storm of bad news — the COVID-induced demand slump amid a supply glut. Oil’s horror show saw black gold’s price falling below $30, $20, $10 and even going negative for a while. The commodity’s collapse threatened the industry’s creditworthiness by hurting cash flows, drying up liquidity and narrowing profit margins. Following the historic selloff, the price of WTI crude is down around 20% year to date.
What Will 2021 Hold for the Sector?
While 2020 turned out to be especially rough for the energy market, the space appears to be turning a corner and looks set for quite a strong year ahead.
Most indicators show that energy could be on a slow but steady recovery path. Currently at around $48 per barrel, WTI oil prices are at multi-month highs, while the international benchmark (or the Brent) has finally broken above the psychological $50 threshold and to its highest level since March. It appears that the commodity is on the mend with the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — up nearly 19% over the past three months to be at the top of the S&P sector standings.
The renewed enthusiasm can be gauged from the fact that the Zacks Oil/Energy sector has gained 22.2% in the past three months, handily outperforming the S&P 500 Index’s 11.3% appreciation. The rise in prices is primarily being driven by continued vaccine-related developments that offer hope of an earlier-than-expected pickup in oil demand.
Earlier this month, the U.K. government approved the Pfizer (PFE - Free Report) -BioNTech (BNTX - Free Report) coronavirus vaccine — the first country in the world to do so. The move by the British government, which has since been followed by other nations including the United States and Canada, is seen as big step against the pandemic that has crushed the commodity’s demand and caused a bloodbath in energy-related stocks. A vaccine is expected to revive economic and transport activity next year, leading to stronger crude demand.
Oil bulls are also supported by the OPEC + agreement to increase output by 500,000 barrels-a-day from January instead of the prescheduled 2 million barrels per day.
Certain Underperformers to Bounce Back Next Year
As the oil markets struggled with the unprecedented coronavirus-induced demand loss over the course of this year, majority of the sector components underperformed. There are chances that some of these stocks might rebound in 2021, given the favorable factors and their fundamental strength.
However, it’s not easy to pick these hidden gems among such underachieved stocks. Hence, we have taken the help of the Zacks Stock Screener to make this task relatively simpler. We have shortlisted five energy stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and are down more than 10% so far this year.
The chart below shows price performance of our five picks year to date.
5 Stocks to Invest In
DCP Midstream, LP : This integrated midstream partnership, carrying a Zacks Rank #1, has done a fairly admirable job at reducing costs. Its cash outflows decrease as capital expenditure continues to fall with a tight leash on spending levels. Apart from significant capital cuts, the partnership should realize sizeable savings from halving the distribution.
The 2021 Zacks Consensus Estimate for DCP Midstream indicates 202.4% earnings per share growth over 2020. The partnership’s units have lost 19% year to date.
China Petroleum & Chemical Corporation or Sinopec : Sporting a Zacks Rank #1, it is one of the largest petroleum and petrochemical companies in Asia. With access to a large captive market like China, Sinopec is expected to experience sustained growth momentum. In particular, strong growth in China’s middle class and in automobile ownership is expected to fuel consumption of refined petroleum products.
The 2021 Zacks Consensus Estimate for Sinopec indicates 25.3% earnings per share growth over 2020. The company’s shares have lost 26.2% year to date.
Vermilion Energy Inc. (VET - Free Report) : Vermilion Energy is an oil and gas explorer with producing properties in Europe, North America and Australia. The company’s diversification across different continents provides it with certain advantages relative to other upstream players. With a Zacks Rank of 2, the energy explorer is currently focused on cost reductions and positive free cash flow generation.
The 2021 Zacks Consensus Estimate for Vermilion Energy indicates 93.4% earnings per share growth over 2020. The company’s shares have lost 70.4% year to date.
NOW Inc. (DNOW - Free Report) : A service provider to the upstream, midstream, and downstream energy industries, NOW is a market leader in supply chain management network. The company’s efficient cost management and a debt-free balance sheet sets it apart from peers. It carries a Zacks Rank of 2.
The 2021 Zacks Consensus Estimate for NOW indicates 46.5% earnings per share growth over 2020. The company’s shares have lost 40.5% year to date.
Enerplus Corporation (ERF - Free Report) : Enerplus focuses on Bakken and Three Forks formations in the Williston Basin in North Dakota, together with interests in the Marcellus Basin in and waterflood projects in Canada. Banking on its low financial leverage and robust liquidity, this upstream energy firm, carrying a Zacks Rank #2, is in a relatively better position to tackle the coronavirus-led industry woes.
The 2021 Zacks Consensus Estimate for Enerplus indicates 437.5% earnings per share growth over 2020. The company’s shares have lost 53.4% year to date.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?
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5 Beaten-Down Energy Stocks to Buy for a Turnaround in 2021
One of the sectors worst hit by the coronavirus pandemic, energy, is finally having something to cheer about.
Not long ago, the contagion caused energy stocks to sink along with crude prices. The commodity was ravaged by a perfect storm of bad news — the COVID-induced demand slump amid a supply glut. Oil’s horror show saw black gold’s price falling below $30, $20, $10 and even going negative for a while. The commodity’s collapse threatened the industry’s creditworthiness by hurting cash flows, drying up liquidity and narrowing profit margins. Following the historic selloff, the price of WTI crude is down around 20% year to date.
What Will 2021 Hold for the Sector?
While 2020 turned out to be especially rough for the energy market, the space appears to be turning a corner and looks set for quite a strong year ahead.
Most indicators show that energy could be on a slow but steady recovery path. Currently at around $48 per barrel, WTI oil prices are at multi-month highs, while the international benchmark (or the Brent) has finally broken above the psychological $50 threshold and to its highest level since March. It appears that the commodity is on the mend with the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — up nearly 19% over the past three months to be at the top of the S&P sector standings.
The renewed enthusiasm can be gauged from the fact that the Zacks Oil/Energy sector has gained 22.2% in the past three months, handily outperforming the S&P 500 Index’s 11.3% appreciation. The rise in prices is primarily being driven by continued vaccine-related developments that offer hope of an earlier-than-expected pickup in oil demand.
Earlier this month, the U.K. government approved the Pfizer (PFE - Free Report) -BioNTech (BNTX - Free Report) coronavirus vaccine — the first country in the world to do so. The move by the British government, which has since been followed by other nations including the United States and Canada, is seen as big step against the pandemic that has crushed the commodity’s demand and caused a bloodbath in energy-related stocks. A vaccine is expected to revive economic and transport activity next year, leading to stronger crude demand.
Oil bulls are also supported by the OPEC + agreement to increase output by 500,000 barrels-a-day from January instead of the prescheduled 2 million barrels per day.
Certain Underperformers to Bounce Back Next Year
As the oil markets struggled with the unprecedented coronavirus-induced demand loss over the course of this year, majority of the sector components underperformed. There are chances that some of these stocks might rebound in 2021, given the favorable factors and their fundamental strength.
However, it’s not easy to pick these hidden gems among such underachieved stocks. Hence, we have taken the help of the Zacks Stock Screener to make this task relatively simpler. We have shortlisted five energy stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and are down more than 10% so far this year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows price performance of our five picks year to date.
5 Stocks to Invest In
DCP Midstream, LP : This integrated midstream partnership, carrying a Zacks Rank #1, has done a fairly admirable job at reducing costs. Its cash outflows decrease as capital expenditure continues to fall with a tight leash on spending levels. Apart from significant capital cuts, the partnership should realize sizeable savings from halving the distribution.
The 2021 Zacks Consensus Estimate for DCP Midstream indicates 202.4% earnings per share growth over 2020. The partnership’s units have lost 19% year to date.
China Petroleum & Chemical Corporation or Sinopec : Sporting a Zacks Rank #1, it is one of the largest petroleum and petrochemical companies in Asia. With access to a large captive market like China, Sinopec is expected to experience sustained growth momentum. In particular, strong growth in China’s middle class and in automobile ownership is expected to fuel consumption of refined petroleum products.
The 2021 Zacks Consensus Estimate for Sinopec indicates 25.3% earnings per share growth over 2020. The company’s shares have lost 26.2% year to date.
Vermilion Energy Inc. (VET - Free Report) : Vermilion Energy is an oil and gas explorer with producing properties in Europe, North America and Australia. The company’s diversification across different continents provides it with certain advantages relative to other upstream players. With a Zacks Rank of 2, the energy explorer is currently focused on cost reductions and positive free cash flow generation.
The 2021 Zacks Consensus Estimate for Vermilion Energy indicates 93.4% earnings per share growth over 2020. The company’s shares have lost 70.4% year to date.
NOW Inc. (DNOW - Free Report) : A service provider to the upstream, midstream, and downstream energy industries, NOW is a market leader in supply chain management network. The company’s efficient cost management and a debt-free balance sheet sets it apart from peers. It carries a Zacks Rank of 2.
The 2021 Zacks Consensus Estimate for NOW indicates 46.5% earnings per share growth over 2020. The company’s shares have lost 40.5% year to date.
Enerplus Corporation (ERF - Free Report) : Enerplus focuses on Bakken and Three Forks formations in the Williston Basin in North Dakota, together with interests in the Marcellus Basin in and waterflood projects in Canada. Banking on its low financial leverage and robust liquidity, this upstream energy firm, carrying a Zacks Rank #2, is in a relatively better position to tackle the coronavirus-led industry woes.
The 2021 Zacks Consensus Estimate for Enerplus indicates 437.5% earnings per share growth over 2020. The company’s shares have lost 53.4% year to date.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>