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5 Oil & Gas Stocks Still on Sale Despite Sector Boom
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Despite concerns surrounding high inflation and slowing growth, this year has been a stellar one for Oil/Energy bulls. The space has easily emerged as the best performing of all 11 U.S. market sectors, gaining nearly 57% so far in 2022. In contrast, the other 10 indexes have all suffered losses year to date. Meanwhile, the broader S&P 500 benchmark is down more than 19% during this period.
While Wall Street continues to be largely bullish on energy, the sector is notoriously volatile, with sudden positive surprises and crashes. Against this backdrop, it will be fruitful to invest in top-ranked companies that are trading below their true value before the broader market catches on.
Apart from a positive fundamental picture, the catalyst behind the energy markets’ strength could be attributed to geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity.
Agreed, oil has pulled back from those lofty levels. However, the commodity still has enough reasons to stay elevated in the near-to-medium term, with the conflict showing no sign of a quick resolution, the risk of dwindling inventory and the influential oil exporters’ group OPEC sticking to a conservative production profile.
Meanwhile, natural gas hit $10 per MMBtu for the first time since 2008 earlier this year and is still trading some 75% higher year to date on the back of favorable weather and strong LNG shipments.
Focus on Value Stocks
While the Energy sector can generate great returns when commodity prices go up and profits skyrocket, it is also exposed to heavy selling pressure when realizations crater. In other words, the oil and gas business is inherently cyclical, with delicate supply/demand balances, among others, determining their fortunes.
Given this uncertainty, it will be wise for investors to apportion their funds in value stocks. Value investing has always been a popular strategy, and with a good reason too. Historical data suggests that value stocks not only tend to outperform growth stocks but are relatively less volatile.
Specifically, for investors who are risk-averse, value investing offers an opportunity to enter the market and grab stocks that have otherwise been overlooked by most, and are thus trading at cheap multiples.
Our Choices
To go with a Value Score of A, we have shortlisted companies with strong fundamentals. This is where the Zacks Rank can come in really handy.
We have picked five energy stocks with a Zacks Rank of #2 (Buy) as our research shows such stocks offer good investment opportunities. The Zacks Rank is a reliable tool that helps you to trade with confidence regardless of your trading style and risk tolerance. To learn more about how you can use this proven system for market-beating gains, visit Zacks Rank Education.
Our chosen stocks also have a market capitalization of more than $1 billion.
Murphy USA: It is a leading independent retailer of motor fuel and convenience merchandise in the United States. The proximity of Murphy USA’s fuel stations to Walmart supercenters helps the company to leverage the strong and consistent traffic that these stores attract. MUSA’s acquisition of QuickChek Corporation — a family-owned food and beverage chain located — is expected to help improve its offerings.
Over the past 90 days, this El Dorado, AR-based Murphy USA has seen the Zacks Consensus Estimate for 2022 improve 11.2%. MUSA, which surpassed third-quarter bottom-line estimates on higher retail gasoline price and margin, is valued at around $6.6 billion. Shares of MUSA are up 47.3% year to date.
NexTier Oilfield Solutions: NexTier Oilfield Solutions is a provider of technical products and services to drillers of oil and gas wells. The company continues to strengthen the customer base for its high-return projects, well-site offerings and digital tools (like NexHub). NEX’s integrated frac fleet services command premium pricing, while its conservative balance sheet and nimble cost structure allow for returning a sizeable portion of free cash to shareholders.
The 2022 Zacks Consensus Estimate for this Houston, TX-based firm indicates 427.9% year-over-year earnings per share growth. NexTier Oilfield Solutions beat the Zacks Consensus Estimate for earnings in three of the last four quarters. Valued at around $2.4 billion, the company has gained 169.3% so far this year.
Phillips 66: Phillips 66 is one of the leading refining players in terms of size, efficiency and strength. The company buys, sells and refines crude oil and other feedstocks at its refineries. PSX, with a throughput capacity of 2 million barrels per day, owns an interest in 12 refineries in the United States and Europe. Moreover, it owns 7,110 branded U.S. outlets and 1,700 international ones.
Phillips 66 has an expected earnings growth rate of 242.6% for the current year. PSX beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 28.1%. Valued at around $49.1 billion, Phillips 66 has gained 43.4% in 2022.
ProPetro Holding: Founded in 2005, ProPetro Holding is an oilfield services provider operating primarily in the Permian Basin spread over west Texas and New Mexico. The company offers a wide spectrum of specialized, complementary services and equipment for the exploration and production of oil and natural gas. Approximately 99% of ProPetro's total revenues come from the Permian Basin.
The 2022 Zacks Consensus Estimate for this Midland, TX-based firm indicates 145.3% year-over-year earnings per share growth. ProPetro holding beat the Zacks Consensus Estimate for earnings in three of the last four quarters. PUMP — valued at around $1.2 billion — has seen its shares go up 26.9% year to date.
Liberty Energy: Previously known as Liberty Oilfield Services, it is a premier provider of hydraulic fracturing and other auxiliary services to onshore exploration and production companies in North America. The Denver, CO-based independent, pure play operates in the Permian Basin, the Eagle Ford Shale, the Denver-Julesburg Basin, the Williston Basin, the San Juan Basin, the Powder River Basin, the Haynesville Shale, the Oklahoma Scoop and Stack areas, the Marcellus Shale, Utica Shale, and the Western Canadian Sedimentary Basins.
The 2022 Zacks Consensus Estimate for the firm indicates 298% year-over-year earnings per share growth. Liberty Energy, with a market capitalization of some $3 billion, beat the Zacks Consensus Estimate for earnings in three of the last four quarters. LBRT has a trailing four-quarter earnings surprise of roughly 58.5%, on average. The company has gained 67% so far this year.
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5 Oil & Gas Stocks Still on Sale Despite Sector Boom
Despite concerns surrounding high inflation and slowing growth, this year has been a stellar one for Oil/Energy bulls. The space has easily emerged as the best performing of all 11 U.S. market sectors, gaining nearly 57% so far in 2022. In contrast, the other 10 indexes have all suffered losses year to date. Meanwhile, the broader S&P 500 benchmark is down more than 19% during this period.
While Wall Street continues to be largely bullish on energy, the sector is notoriously volatile, with sudden positive surprises and crashes. Against this backdrop, it will be fruitful to invest in top-ranked companies that are trading below their true value before the broader market catches on.
Taking this into account, Murphy USA (MUSA - Free Report) , NexTier Oilfield Solutions , Phillips 66 (PSX - Free Report) , ProPetro Holding (PUMP - Free Report) and Liberty Energy (LBRT - Free Report) make the cut.
Energy Defies Broader Market Selloff
Apart from a positive fundamental picture, the catalyst behind the energy markets’ strength could be attributed to geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity.
Agreed, oil has pulled back from those lofty levels. However, the commodity still has enough reasons to stay elevated in the near-to-medium term, with the conflict showing no sign of a quick resolution, the risk of dwindling inventory and the influential oil exporters’ group OPEC sticking to a conservative production profile.
Meanwhile, natural gas hit $10 per MMBtu for the first time since 2008 earlier this year and is still trading some 75% higher year to date on the back of favorable weather and strong LNG shipments.
Focus on Value Stocks
While the Energy sector can generate great returns when commodity prices go up and profits skyrocket, it is also exposed to heavy selling pressure when realizations crater. In other words, the oil and gas business is inherently cyclical, with delicate supply/demand balances, among others, determining their fortunes.
Given this uncertainty, it will be wise for investors to apportion their funds in value stocks. Value investing has always been a popular strategy, and with a good reason too. Historical data suggests that value stocks not only tend to outperform growth stocks but are relatively less volatile.
Specifically, for investors who are risk-averse, value investing offers an opportunity to enter the market and grab stocks that have otherwise been overlooked by most, and are thus trading at cheap multiples.
Our Choices
To go with a Value Score of A, we have shortlisted companies with strong fundamentals. This is where the Zacks Rank can come in really handy.
We have picked five energy stocks with a Zacks Rank of #2 (Buy) as our research shows such stocks offer good investment opportunities. The Zacks Rank is a reliable tool that helps you to trade with confidence regardless of your trading style and risk tolerance. To learn more about how you can use this proven system for market-beating gains, visit Zacks Rank Education.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Our chosen stocks also have a market capitalization of more than $1 billion.
Murphy USA: It is a leading independent retailer of motor fuel and convenience merchandise in the United States. The proximity of Murphy USA’s fuel stations to Walmart supercenters helps the company to leverage the strong and consistent traffic that these stores attract. MUSA’s acquisition of QuickChek Corporation — a family-owned food and beverage chain located — is expected to help improve its offerings.
Over the past 90 days, this El Dorado, AR-based Murphy USA has seen the Zacks Consensus Estimate for 2022 improve 11.2%. MUSA, which surpassed third-quarter bottom-line estimates on higher retail gasoline price and margin, is valued at around $6.6 billion. Shares of MUSA are up 47.3% year to date.
NexTier Oilfield Solutions: NexTier Oilfield Solutions is a provider of technical products and services to drillers of oil and gas wells. The company continues to strengthen the customer base for its high-return projects, well-site offerings and digital tools (like NexHub). NEX’s integrated frac fleet services command premium pricing, while its conservative balance sheet and nimble cost structure allow for returning a sizeable portion of free cash to shareholders.
The 2022 Zacks Consensus Estimate for this Houston, TX-based firm indicates 427.9% year-over-year earnings per share growth. NexTier Oilfield Solutions beat the Zacks Consensus Estimate for earnings in three of the last four quarters. Valued at around $2.4 billion, the company has gained 169.3% so far this year.
Phillips 66: Phillips 66 is one of the leading refining players in terms of size, efficiency and strength. The company buys, sells and refines crude oil and other feedstocks at its refineries. PSX, with a throughput capacity of 2 million barrels per day, owns an interest in 12 refineries in the United States and Europe. Moreover, it owns 7,110 branded U.S. outlets and 1,700 international ones.
Phillips 66 has an expected earnings growth rate of 242.6% for the current year. PSX beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 28.1%. Valued at around $49.1 billion, Phillips 66 has gained 43.4% in 2022.
ProPetro Holding: Founded in 2005, ProPetro Holding is an oilfield services provider operating primarily in the Permian Basin spread over west Texas and New Mexico. The company offers a wide spectrum of specialized, complementary services and equipment for the exploration and production of oil and natural gas. Approximately 99% of ProPetro's total revenues come from the Permian Basin.
The 2022 Zacks Consensus Estimate for this Midland, TX-based firm indicates 145.3% year-over-year earnings per share growth. ProPetro holding beat the Zacks Consensus Estimate for earnings in three of the last four quarters. PUMP — valued at around $1.2 billion — has seen its shares go up 26.9% year to date.
Liberty Energy: Previously known as Liberty Oilfield Services, it is a premier provider of hydraulic fracturing and other auxiliary services to onshore exploration and production companies in North America. The Denver, CO-based independent, pure play operates in the Permian Basin, the Eagle Ford Shale, the Denver-Julesburg Basin, the Williston Basin, the San Juan Basin, the Powder River Basin, the Haynesville Shale, the Oklahoma Scoop and Stack areas, the Marcellus Shale, Utica Shale, and the Western Canadian Sedimentary Basins.
The 2022 Zacks Consensus Estimate for the firm indicates 298% year-over-year earnings per share growth. Liberty Energy, with a market capitalization of some $3 billion, beat the Zacks Consensus Estimate for earnings in three of the last four quarters. LBRT has a trailing four-quarter earnings surprise of roughly 58.5%, on average. The company has gained 67% so far this year.