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5 Energy Stocks That Powered S&P 500's Stunning 1H Gains
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We are now halfway through 2021, and U.S. equities are enjoying one of the best first-half starts in years. The S&P 500 was up 14.4% during the January-June period, while the Dow and the Nasdaq gained about 12.7% and 12.5%, respectively. In particular, the S&P 500 — regarded as one of the finest reflections of the stock market as a whole — not only recorded its second-best first-half performance since 1998 but also notched a string of all-time highs in the process. The index’s superb run has been driven by optimism around America’s faster economic recovery on the back of stimulus payments, stepped-up vaccinations and resumption of business activities, which offset concerns about rising inflation levels.
Energy Emerges as the Star Performer
On the sectoral front, Oil/Energy has topped the S&P standings year to date with a gain of 42.14%. The space has significantly outperformed the market, with the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies, popularly known by its ticker, XLE — hitting a new 52-week high in June, marking a more than 145% jump from its lockdown lows in March last year, fueled by hopes of a faster demand recovery. To be precise, the energy index generated a total return of 27.3% in 2021 compared with the S&P 500’s 15.1%.
Taking investors on a rollercoaster ride, crude has made a stunning rebound — from the depths of minus $38 a barrel in April 2020 to reclaim a more than two-and-a-half-year high of $75.23 a barrel yesterday.
The commodity has spent much of the past few months trading higher on continued vaccine-related developments and their successful deployment around the world, offering hope of an earlier-than-expected pickup in demand. The OPEC+ cartel’s calibrated production policy has also driven up oil. It is widely believed that today’s monthly meeting will see member countries of the OPEC+ group — a coalition between OPEC countries under kingpin Saudi Arabia and non-members led by Russia — choosing to boost output by 400,000-500,000 barrels a day starting in August, reflecting their confidence in the fuel’s demand. Easing coronavirus infections, signs of robust demand in the world’s second-largest oil consumer, China, and the passage of the $1.9 trillion stimulus bill are the other positives in the oil story.
While most energy investors have had something to cheer about so far in 2021, some stocks certainly performed better than the others. The five largest contributors to the year-to-date gains have been Marathon Oil (MRO - Free Report) , Diamondback Energy (FANG - Free Report) , Devon Energy (DVN - Free Report) , Occidental Petroleum (OXY - Free Report) and EOG Resources (EOG - Free Report) .
Will these winners maintain their run in the second half too, or will they flop toward the end of the year? Here's a brief summary of them:
Marathon Oil: The upstream energy company’s oil and gas operations are mainly concentrated in the United States (including Oklahoma, Eagle Ford, Bakken and Northern Delaware) and Equatorial Guinea.
In the last reported quarter, Marathon reported adjusted earnings per share of 21 cents, outpacing the Zacks Consensus Estimate of 13 cents. The company’s bottom line was favorably impacted by a stringent cost control and better-than-expected contribution from its International E&P segment. On a further positive note, Marathon increased its quarterly base dividend above 30% from 3 cents to 4 cents per share.
This Zacks Rank #3 (Hold) stock outperformed the other energy companies and was up 104.20% during the period, ranking first on the S&P 500 list. However, it remains to be seen if Marathon could gain similar traction in the near-to-medium term. While the company looks poised for strong free cash flow generation through the next few years, volatile commodity prices and the way it trades in the future could have a significant impact on the business of Marathon.
Diamondback Energy: Diamondback Energy focuses on growth through a combination of acquisitions and active drilling in the Permian Basin. Diamondback's leading position in the unconventional play got another leg up with the recently completed takeover of QEP Resources.
Diamondback’s first-quarter bottom line came in above expectations, led by better-than-expected production. Precisely, overall volumes were 307.4 thousand barrels of oil equivalent per day (MBOE/d), beating the Zacks Consensus Estimate of 302.6 MBOE/d.
This Zacks Rank #3 stock soared 93.99% in the last six months. Diamondback appears well positioned with its low-cost structure and investment grade balance sheet, which should allow it to thrive in the ongoing commodity upcycle. However, as crude accounts for the major part of Diamondback’s reserves and production, the company’s results are vulnerable to fluctuations in oil markets. Its relatively high debt level also remains a cause of worry.
Devon Energy: Devon is an independent energy company whose oil and gas operations are mainly concentrated in the onshore areas of North America, primarily in the United States. The company’s assets are spread across the key oil assets of Delaware Basin, Eagle Ford, Anadarko Basin and Powder River Basin.
In the last reported quarter, Devon Energy reported adjusted earnings of 45 cents, beating the Zacks Consensus Estimate of 35 cents per share by 28.6%. The outperformance reflects higher-than-expected production.
Devon, carrying a Zacks Rank #3, rallied 87.53% in the first half. The company’s recent merger with WPX Energy has strengthened its operations in the prolific Permian Basin. Devon’s cost management, divestiture of Canadian assets, and completion of the Barnett Shale gas assets sale will allow it to focus on its holdings in four high-quality, oil-rich U.S. basins. The company’s innovative dividend policy should also attract investors. However, the stock’s upside will be limited by product cost inflation and the volatility in oil/gas prices.
Occidental Petroleum: Founded in 1920, Houston, TX-based Occidental Petroleum is an integrated oil and gas company, with significant exploration and production exposure. The company is also a producer of a variety of basic chemicals, petrochemicals, polymers and specialty chemicals.
Occidental reported first-quarter 2021 loss of 15 cents per share, narrower than the Zacks Consensus Estimate of a loss of 33 cents. The better-than-expected bottom line could be attributed to strong production and higher realized prices.
This Zacks Rank #3 stock was the fourth-best sector performer in the S&P 500 Index, with shares appreciating 80.65% in the first half. Occidental’s continued focus on the Permian Basin, efficient cost management and impressive asset profile are the major positives. However, the company’s struggles with a massive long-term debt of around $35.5 billion and repercussions from the cancellation of the African asset divestment deal could limit share price gains.
EOG Resources: EOG Resources is a top-tier U.S. shale play. The United States accounts for more than 92% of the total production volumes, with the Eagle Ford and Delaware Basin being the primary contributors. Internationally, the company has operations in China and Trinidad.
EOG Resources delivered better-than-expected first-quarter 2021 bottom line due to increased crude oil and condensates price along with a decline in lease and well expenses. The company’s board of directors also announced a special dividend of $1 per share. The announcement came along with a regular dividend of 41.25 cents per share.
The upstream operator, carrying a Zacks Rank #3, saw its stock surge 67.32% in the first half of 2021. EOG Resources should benefit from its attractive growth profile, a huge inventory of drilling opportunities, upper quartile returns and a disciplined management team. However, this #3 Ranked oil and gas finder’s near-term stock price appreciation is likely to be under pressure due to rising lease and well operating costs.
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5 Energy Stocks That Powered S&P 500's Stunning 1H Gains
We are now halfway through 2021, and U.S. equities are enjoying one of the best first-half starts in years. The S&P 500 was up 14.4% during the January-June period, while the Dow and the Nasdaq gained about 12.7% and 12.5%, respectively. In particular, the S&P 500 — regarded as one of the finest reflections of the stock market as a whole — not only recorded its second-best first-half performance since 1998 but also notched a string of all-time highs in the process. The index’s superb run has been driven by optimism around America’s faster economic recovery on the back of stimulus payments, stepped-up vaccinations and resumption of business activities, which offset concerns about rising inflation levels.
Energy Emerges as the Star Performer
On the sectoral front, Oil/Energy has topped the S&P standings year to date with a gain of 42.14%. The space has significantly outperformed the market, with the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies, popularly known by its ticker, XLE — hitting a new 52-week high in June, marking a more than 145% jump from its lockdown lows in March last year, fueled by hopes of a faster demand recovery. To be precise, the energy index generated a total return of 27.3% in 2021 compared with the S&P 500’s 15.1%.
Taking investors on a rollercoaster ride, crude has made a stunning rebound — from the depths of minus $38 a barrel in April 2020 to reclaim a more than two-and-a-half-year high of $75.23 a barrel yesterday.
The commodity has spent much of the past few months trading higher on continued vaccine-related developments and their successful deployment around the world, offering hope of an earlier-than-expected pickup in demand. The OPEC+ cartel’s calibrated production policy has also driven up oil. It is widely believed that today’s monthly meeting will see member countries of the OPEC+ group — a coalition between OPEC countries under kingpin Saudi Arabia and non-members led by Russia — choosing to boost output by 400,000-500,000 barrels a day starting in August, reflecting their confidence in the fuel’s demand. Easing coronavirus infections, signs of robust demand in the world’s second-largest oil consumer, China, and the passage of the $1.9 trillion stimulus bill are the other positives in the oil story.
While most energy investors have had something to cheer about so far in 2021, some stocks certainly performed better than the others. The five largest contributors to the year-to-date gains have been Marathon Oil (MRO - Free Report) , Diamondback Energy (FANG - Free Report) , Devon Energy (DVN - Free Report) , Occidental Petroleum (OXY - Free Report) and EOG Resources (EOG - Free Report) .
Will these winners maintain their run in the second half too, or will they flop toward the end of the year? Here's a brief summary of them:
Marathon Oil: The upstream energy company’s oil and gas operations are mainly concentrated in the United States (including Oklahoma, Eagle Ford, Bakken and Northern Delaware) and Equatorial Guinea.
In the last reported quarter, Marathon reported adjusted earnings per share of 21 cents, outpacing the Zacks Consensus Estimate of 13 cents. The company’s bottom line was favorably impacted by a stringent cost control and better-than-expected contribution from its International E&P segment. On a further positive note, Marathon increased its quarterly base dividend above 30% from 3 cents to 4 cents per share.
This Zacks Rank #3 (Hold) stock outperformed the other energy companies and was up 104.20% during the period, ranking first on the S&P 500 list. However, it remains to be seen if Marathon could gain similar traction in the near-to-medium term. While the company looks poised for strong free cash flow generation through the next few years, volatile commodity prices and the way it trades in the future could have a significant impact on the business of Marathon.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Diamondback Energy: Diamondback Energy focuses on growth through a combination of acquisitions and active drilling in the Permian Basin. Diamondback's leading position in the unconventional play got another leg up with the recently completed takeover of QEP Resources.
Diamondback’s first-quarter bottom line came in above expectations, led by better-than-expected production. Precisely, overall volumes were 307.4 thousand barrels of oil equivalent per day (MBOE/d), beating the Zacks Consensus Estimate of 302.6 MBOE/d.
This Zacks Rank #3 stock soared 93.99% in the last six months. Diamondback appears well positioned with its low-cost structure and investment grade balance sheet, which should allow it to thrive in the ongoing commodity upcycle. However, as crude accounts for the major part of Diamondback’s reserves and production, the company’s results are vulnerable to fluctuations in oil markets. Its relatively high debt level also remains a cause of worry.
Devon Energy: Devon is an independent energy company whose oil and gas operations are mainly concentrated in the onshore areas of North America, primarily in the United States. The company’s assets are spread across the key oil assets of Delaware Basin, Eagle Ford, Anadarko Basin and Powder River Basin.
In the last reported quarter, Devon Energy reported adjusted earnings of 45 cents, beating the Zacks Consensus Estimate of 35 cents per share by 28.6%. The outperformance reflects higher-than-expected production.
Devon, carrying a Zacks Rank #3, rallied 87.53% in the first half. The company’s recent merger with WPX Energy has strengthened its operations in the prolific Permian Basin. Devon’s cost management, divestiture of Canadian assets, and completion of the Barnett Shale gas assets sale will allow it to focus on its holdings in four high-quality, oil-rich U.S. basins. The company’s innovative dividend policy should also attract investors. However, the stock’s upside will be limited by product cost inflation and the volatility in oil/gas prices.
Occidental Petroleum: Founded in 1920, Houston, TX-based Occidental Petroleum is an integrated oil and gas company, with significant exploration and production exposure. The company is also a producer of a variety of basic chemicals, petrochemicals, polymers and specialty chemicals.
Occidental reported first-quarter 2021 loss of 15 cents per share, narrower than the Zacks Consensus Estimate of a loss of 33 cents. The better-than-expected bottom line could be attributed to strong production and higher realized prices.
This Zacks Rank #3 stock was the fourth-best sector performer in the S&P 500 Index, with shares appreciating 80.65% in the first half. Occidental’s continued focus on the Permian Basin, efficient cost management and impressive asset profile are the major positives. However, the company’s struggles with a massive long-term debt of around $35.5 billion and repercussions from the cancellation of the African asset divestment deal could limit share price gains.
EOG Resources: EOG Resources is a top-tier U.S. shale play. The United States accounts for more than 92% of the total production volumes, with the Eagle Ford and Delaware Basin being the primary contributors. Internationally, the company has operations in China and Trinidad.
EOG Resources delivered better-than-expected first-quarter 2021 bottom line due to increased crude oil and condensates price along with a decline in lease and well expenses. The company’s board of directors also announced a special dividend of $1 per share. The announcement came along with a regular dividend of 41.25 cents per share.
The upstream operator, carrying a Zacks Rank #3, saw its stock surge 67.32% in the first half of 2021. EOG Resources should benefit from its attractive growth profile, a huge inventory of drilling opportunities, upper quartile returns and a disciplined management team. However, this #3 Ranked oil and gas finder’s near-term stock price appreciation is likely to be under pressure due to rising lease and well operating costs.
Zacks' Top Picks to Cash in on Artificial Intelligence
In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create "the world's first trillionaires." Zacks' urgent special report reveals 3 AI picks investors need to know about today.
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