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Energy markets have been mostly quiet for the last few quarters. After the tremendous run up to $130 per barrel at the onset of the Russia - Ukraine War, prices have cooled off significantly. But it looks like the oil bull market is about to start up again.
After trading in a tight range for the last three months oil prices look like they are breaking out. A rally in oil will have many significant implications. Of course, the stocks of energy companies will benefit, as with high oil prices come higher margins, but there is more to it than that. If oil prices rise significantly, it will have a strong effect on CPI and inflation.
A hot inflation print, boosted by energy prices, would be very bad for policymakers and the market. It may also cause a feedback loop, where higher inflation will also increase demand for energy stocks which have acted as a haven during periods of inflation. Either way energy stocks look like a good place to be.
Image Source: TradingView
Valero Energy
Whenever I find a thematic trend that looks appealing, I go to the Zacks Rank to look for highly rated stock with earnings being revised higher. Valero Energy (VLO - Free Report) fits the bill.
Valero Energy is the largest independent refiner and marketer of petroleum products in the United States. The company was founded in 1980. It has a refining capacity of 3.1 million barrels per day across 15 refineries located throughout the U.S., Canada, and the U.K..
Valero Energy currently boasts a Zacks Rank #1 (Strong Buy), indicating upward trending earnings revisions. Earnings have been upgraded significantly across timeframes. Over just the last 60 days, current quarter earnings have climbed 45%
Image Source: Zacks Investment Research
VLO is trading at a very reasonable valuation. At just 6x one-year forward earnings, VLO is well below its 5-year median of 12x. Valero Energy also offers a dividend yield of 2.9%, which has increased by an average of 5% annually over the last five years.
Image Source: Zacks Investment Research
VLO stock is off to a good start this year, already up 10%. Over the last ten years Valero stock is up 390%, 3x more than the industry average, and outperforming the broad stock index returns.
Marathon Petroleum
Another way to identify good stocks is to look for relative leaders within sectors. Marathon Petroleum (MPC - Free Report) is the best performing stock in the (XLE - Free Report) Energy ETF. Up 12% over just the last month it has more than doubled the second-best stock in the fund.
Marathon Petroleum is a leading independent refiner, transporter, and marketer of petroleum products. In October 2018, Marathon Oil completed the acquisition of its rival Andeavor in a $23.3 billion deal, thereby becoming the nationwide largest refining company by market capitalization. The deal also made the company the largest U.S. refiner and the fifth largest in the world by capacity.
Marathon Petroleum is a Zacks Rank #2 (Buy) stock, indicating upward trending earnings revisions.
Image Source: Zacks Investment Research
Earnings expectations have been revised higher across timeframes.
Image Source: Zacks Investment Research
MPC is trading at a very reasonable valuation of 7.5x one-year forward earnings, which is well below its 10-year median of 11.5x, and just above the industry average of 5.75. Marathon offers a 2.3% dividend yield, which has increased by an average of 7% annually over the last five years.
Image Source: Zacks Investment Research
Vista Oil and Gas
Vista Oil and Gas (VIST - Free Report) focuses on the identification, acquisition and development of oil and gas fields primarily in Mexico, Argentina, Brazil and Colombia.
Vista Oil and Gas is one of the best performing stocks in the market, dramatically outperforming both the industry and broad market. VIST has a Zacks Rank #2 (Buy), indicating an upward earnings revision trend.
Image Source: Zacks Investment Research
Current quarter sales are expected to come in at $312 million, a 50% YoY increase. Current year sales are also expected to grow 19% to $1.4 billion. Earnings are projected to see a big boost as well, with estimates of $0.95 per share indicating a 500% increase. Current year earnings estimates are expected to climb to $4.34 per share, a 48% increase.
Like the rest of the industry, VIST trades at a very fair valuation. At 4.5x one-year forward earnings it is well below the industry average of 8x, and right in line with its two-year median of 4.5x. VIST offers no dividend payouts.
Image Source: Zacks Investment Research
Conclusion
It looks like we are entering a new regime in the oil market very soon. If this breakout in oil prices has legs, it can have tremendous influence on how investors behave. I recommend keeping a close eye on oil so long as WTI trades above $80.
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Oil is Breaking out: 3 Energy Stocks to Buy Now
Energy markets have been mostly quiet for the last few quarters. After the tremendous run up to $130 per barrel at the onset of the Russia - Ukraine War, prices have cooled off significantly. But it looks like the oil bull market is about to start up again.
After trading in a tight range for the last three months oil prices look like they are breaking out. A rally in oil will have many significant implications. Of course, the stocks of energy companies will benefit, as with high oil prices come higher margins, but there is more to it than that. If oil prices rise significantly, it will have a strong effect on CPI and inflation.
A hot inflation print, boosted by energy prices, would be very bad for policymakers and the market. It may also cause a feedback loop, where higher inflation will also increase demand for energy stocks which have acted as a haven during periods of inflation. Either way energy stocks look like a good place to be.
Image Source: TradingView
Valero Energy
Whenever I find a thematic trend that looks appealing, I go to the Zacks Rank to look for highly rated stock with earnings being revised higher. Valero Energy (VLO - Free Report) fits the bill.
Valero Energy is the largest independent refiner and marketer of petroleum products in the United States. The company was founded in 1980. It has a refining capacity of 3.1 million barrels per day across 15 refineries located throughout the U.S., Canada, and the U.K..
Valero Energy currently boasts a Zacks Rank #1 (Strong Buy), indicating upward trending earnings revisions. Earnings have been upgraded significantly across timeframes. Over just the last 60 days, current quarter earnings have climbed 45%
Image Source: Zacks Investment Research
VLO is trading at a very reasonable valuation. At just 6x one-year forward earnings, VLO is well below its 5-year median of 12x. Valero Energy also offers a dividend yield of 2.9%, which has increased by an average of 5% annually over the last five years.
Image Source: Zacks Investment Research
VLO stock is off to a good start this year, already up 10%. Over the last ten years Valero stock is up 390%, 3x more than the industry average, and outperforming the broad stock index returns.
Marathon Petroleum
Another way to identify good stocks is to look for relative leaders within sectors. Marathon Petroleum (MPC - Free Report) is the best performing stock in the (XLE - Free Report) Energy ETF. Up 12% over just the last month it has more than doubled the second-best stock in the fund.
Marathon Petroleum is a leading independent refiner, transporter, and marketer of petroleum products. In October 2018, Marathon Oil completed the acquisition of its rival Andeavor in a $23.3 billion deal, thereby becoming the nationwide largest refining company by market capitalization. The deal also made the company the largest U.S. refiner and the fifth largest in the world by capacity.
Marathon Petroleum is a Zacks Rank #2 (Buy) stock, indicating upward trending earnings revisions.
Image Source: Zacks Investment Research
Earnings expectations have been revised higher across timeframes.
Image Source: Zacks Investment Research
MPC is trading at a very reasonable valuation of 7.5x one-year forward earnings, which is well below its 10-year median of 11.5x, and just above the industry average of 5.75. Marathon offers a 2.3% dividend yield, which has increased by an average of 7% annually over the last five years.
Image Source: Zacks Investment Research
Vista Oil and Gas
Vista Oil and Gas (VIST - Free Report) focuses on the identification, acquisition and development of oil and gas fields primarily in Mexico, Argentina, Brazil and Colombia.
Vista Oil and Gas is one of the best performing stocks in the market, dramatically outperforming both the industry and broad market. VIST has a Zacks Rank #2 (Buy), indicating an upward earnings revision trend.
Image Source: Zacks Investment Research
Current quarter sales are expected to come in at $312 million, a 50% YoY increase. Current year sales are also expected to grow 19% to $1.4 billion. Earnings are projected to see a big boost as well, with estimates of $0.95 per share indicating a 500% increase. Current year earnings estimates are expected to climb to $4.34 per share, a 48% increase.
Like the rest of the industry, VIST trades at a very fair valuation. At 4.5x one-year forward earnings it is well below the industry average of 8x, and right in line with its two-year median of 4.5x. VIST offers no dividend payouts.
Image Source: Zacks Investment Research
Conclusion
It looks like we are entering a new regime in the oil market very soon. If this breakout in oil prices has legs, it can have tremendous influence on how investors behave. I recommend keeping a close eye on oil so long as WTI trades above $80.