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Now that oil prices are below $70 a barrel it seems investors have lost faith in their energy investments. But what if the recent drop in oil and sentiment is just a fake out?
Bolstered by geopolitical tensions, high inflation, and anemic domestic production, energy stocks posted a banner year in 2022. Energy was the only sector in the market that finished last year in the green, and it did so emphatically, up nearly 60%.
Image Source: Zacks Investment Research
With higher interest rates and now a banking crisis many analysts think a recession is just around the corner. That would be bad for oil demand and energy stocks. But last week OPEC publicly committed to significantly cutting production, putting a floor under the price of oil. And now with the Fed potentially easing off the interest rate hikes, it is possible there is another rally in inflation.
Additionally, there is this kind of well-known investor names Warren Buffett who knows a thing or two about investing in stocks. Buffett cannot stop buying oil stocks, indicating that he thinks energy is still an appealing investment.
The price of oil is down nearly 50% from its 2022 high, yet many of the top oil and gas stocks are still holding up well. Even after the tremendous run up energy stocks had in 2022, many of them still boast reasonable valuations. In this article I will cover three highly ranked energy stocks that have forward earnings multiples below 10x, which help make them very compelling investments right now.
CVR Energy
Headquartered in Sugar Land, Texas, CVR Energy (CVI - Free Report) is an independent refiner and marketer of high value transportation fuels such as gasoline and diesel. CVI owns and operates a coking medium-sour crude oil refinery in Kansas and a crude oil refinery in Oklahoma. The business serves retailers, railroads, farms and other refineries and marketers.
CVR Energy is currently a Zacks Rank #1 (Strong Buy) stock, indicating upward trending earnings revisions. CVI has been a strong performing stock over the last year and offers a very generous dividend yield of 6.5%.
Image Source: Zacks Investment Research
Over the next few earnings periods sales are expected to fall, but current quarter earnings are still expected to skyrocket 4,300% YoY to $0.88 per share. Over the last 60 days analysts have unanimously revised earnings higher across all reporting periods. Current year earnings expectations have nearly doubled over the last three months.
Image Source: Zacks Investment Research
CVI is trading at a one-year forward earnings multiple of 9x, which is below its 10-year median of 12x, and above the industry average 5x.
Image Source: Zacks Investment Research
Marathon Petroleum
Marathon Petroleum (MPC - Free Report) is a U.S. based integrated, downstream energy company. MPC operates through two segments, Refining and Marketing and Pipeline Transportation. Marathon Petroleum’s Refining and Marketing unit operates 16 refineries with a crude processing capacity of 3 million barrels per day. In 2022 the refining business recorded $16.5 billion in profits. Pipeline transportation, operating as a partnership with Andeavor Logistics, transports oil products and manages logistics. It earned $4.5 billion in profits in 2022.
Additionally, in 2021, Marathon Petroleum sold its Speedway retail gasoline business for $21 billion to Japanese retail group Seven & I Holdings – owner of the 7-Eleven convenience store chain.
MPC stock has been extremely strong over the last year. It has outperformed the industry and market considerably. Even with the weakness in the sector, its share price is still very close to breaking out to new all-time highs again.
Image Source: Zacks Investment Research
Marathon Petroleum currently has a Zacks Rank #2 (Buy), indicating an upward trend in earnings revisions. While sales are projected to fall across the board, earnings have been revised higher nonetheless. Additionally, it has a very impressive earnings surprise prediction. The stock is expected to beat on all the next earnings reports, with next quarter projected to beat by 28%.
Image Source: Zacks Investment Research
MPC is trading at a one-year forward earnings multiple of 6x, which is just above the industry average of 5x, and well below its five-year median of 11x. Marathon Petroleum also offers a dividend yield of 2.4%, which it has boosted by an average of 12% annually over the last three years.
Image Source: Zacks Investment Research
Valero Energy
Valero Energy (VLO - Free Report) is a deeply diversified oil refinery company with 15 plants across the U.S., Canada, and the Caribbean and capacity to refine 3.2 million barrels a day. The majority of VLO’s refinery plants are located in the Gulf Coast with easy access to export facilities, boosting margins. Valero recently reported strong fourth-quarter results with a 13% upside surprise on EPS.
VLO stock has been a very strong performer over the last year. The stock has more than tripled the returns of its respective industry and trounced the returns of the broad market.
Image Source: Zacks Investment Research
Valero Energy earns a Zacks Rank #1 (Strong Buy), indicating upward trending earnings revisions. Current quarter earnings are expected to climb 186% YoY to $6.62 per share, while current quarter sale are expected to drop -13% to $33.5 billion.
Although there have been some slight revisions lower in the current quarter recently, earnings have still been revised considerably higher over the last three months. Furthermore, all other earnings periods have been revised considerably higher, with current year earnings being upgraded by 36%.
Image Source: Zacks Investment Research
VLO is trading at a very reasonable 5x one-year forward earnings, which is in line with the industry and well below its five-year median of 13x. VLO also offers a dividend yield of 3.2%, which has been raised by an average of 4.8% annually over the last five years.
Image Source: Zacks Investment Research
Conclusion
There has been a major rotation out of energy stocks, yet based on the valuations and improving earnings expectations, they are still compelling investments. While energy prices have been rolling over for the better part of the last year, many of these stocks have held up very well. As uncomfortable as it is sometimes going against can be a profitable endeavor.
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3 Stocks for Oil and Gas Contrarians to Buy
Now that oil prices are below $70 a barrel it seems investors have lost faith in their energy investments. But what if the recent drop in oil and sentiment is just a fake out?
Bolstered by geopolitical tensions, high inflation, and anemic domestic production, energy stocks posted a banner year in 2022. Energy was the only sector in the market that finished last year in the green, and it did so emphatically, up nearly 60%.
Image Source: Zacks Investment Research
With higher interest rates and now a banking crisis many analysts think a recession is just around the corner. That would be bad for oil demand and energy stocks. But last week OPEC publicly committed to significantly cutting production, putting a floor under the price of oil. And now with the Fed potentially easing off the interest rate hikes, it is possible there is another rally in inflation.
Additionally, there is this kind of well-known investor names Warren Buffett who knows a thing or two about investing in stocks. Buffett cannot stop buying oil stocks, indicating that he thinks energy is still an appealing investment.
The price of oil is down nearly 50% from its 2022 high, yet many of the top oil and gas stocks are still holding up well. Even after the tremendous run up energy stocks had in 2022, many of them still boast reasonable valuations. In this article I will cover three highly ranked energy stocks that have forward earnings multiples below 10x, which help make them very compelling investments right now.
CVR Energy
Headquartered in Sugar Land, Texas, CVR Energy (CVI - Free Report) is an independent refiner and marketer of high value transportation fuels such as gasoline and diesel. CVI owns and operates a coking medium-sour crude oil refinery in Kansas and a crude oil refinery in Oklahoma. The business serves retailers, railroads, farms and other refineries and marketers.
CVR Energy is currently a Zacks Rank #1 (Strong Buy) stock, indicating upward trending earnings revisions. CVI has been a strong performing stock over the last year and offers a very generous dividend yield of 6.5%.
Image Source: Zacks Investment Research
Over the next few earnings periods sales are expected to fall, but current quarter earnings are still expected to skyrocket 4,300% YoY to $0.88 per share. Over the last 60 days analysts have unanimously revised earnings higher across all reporting periods. Current year earnings expectations have nearly doubled over the last three months.
Image Source: Zacks Investment Research
CVI is trading at a one-year forward earnings multiple of 9x, which is below its 10-year median of 12x, and above the industry average 5x.
Image Source: Zacks Investment Research
Marathon Petroleum
Marathon Petroleum (MPC - Free Report) is a U.S. based integrated, downstream energy company. MPC operates through two segments, Refining and Marketing and Pipeline Transportation. Marathon Petroleum’s Refining and Marketing unit operates 16 refineries with a crude processing capacity of 3 million barrels per day. In 2022 the refining business recorded $16.5 billion in profits. Pipeline transportation, operating as a partnership with Andeavor Logistics, transports oil products and manages logistics. It earned $4.5 billion in profits in 2022.
Additionally, in 2021, Marathon Petroleum sold its Speedway retail gasoline business for $21 billion to Japanese retail group Seven & I Holdings – owner of the 7-Eleven convenience store chain.
MPC stock has been extremely strong over the last year. It has outperformed the industry and market considerably. Even with the weakness in the sector, its share price is still very close to breaking out to new all-time highs again.
Image Source: Zacks Investment Research
Marathon Petroleum currently has a Zacks Rank #2 (Buy), indicating an upward trend in earnings revisions. While sales are projected to fall across the board, earnings have been revised higher nonetheless. Additionally, it has a very impressive earnings surprise prediction. The stock is expected to beat on all the next earnings reports, with next quarter projected to beat by 28%.
Image Source: Zacks Investment Research
MPC is trading at a one-year forward earnings multiple of 6x, which is just above the industry average of 5x, and well below its five-year median of 11x. Marathon Petroleum also offers a dividend yield of 2.4%, which it has boosted by an average of 12% annually over the last three years.
Image Source: Zacks Investment Research
Valero Energy
Valero Energy (VLO - Free Report) is a deeply diversified oil refinery company with 15 plants across the U.S., Canada, and the Caribbean and capacity to refine 3.2 million barrels a day. The majority of VLO’s refinery plants are located in the Gulf Coast with easy access to export facilities, boosting margins. Valero recently reported strong fourth-quarter results with a 13% upside surprise on EPS.
VLO stock has been a very strong performer over the last year. The stock has more than tripled the returns of its respective industry and trounced the returns of the broad market.
Image Source: Zacks Investment Research
Valero Energy earns a Zacks Rank #1 (Strong Buy), indicating upward trending earnings revisions. Current quarter earnings are expected to climb 186% YoY to $6.62 per share, while current quarter sale are expected to drop -13% to $33.5 billion.
Although there have been some slight revisions lower in the current quarter recently, earnings have still been revised considerably higher over the last three months. Furthermore, all other earnings periods have been revised considerably higher, with current year earnings being upgraded by 36%.
Image Source: Zacks Investment Research
VLO is trading at a very reasonable 5x one-year forward earnings, which is in line with the industry and well below its five-year median of 13x. VLO also offers a dividend yield of 3.2%, which has been raised by an average of 4.8% annually over the last five years.
Image Source: Zacks Investment Research
Conclusion
There has been a major rotation out of energy stocks, yet based on the valuations and improving earnings expectations, they are still compelling investments. While energy prices have been rolling over for the better part of the last year, many of these stocks have held up very well. As uncomfortable as it is sometimes going against can be a profitable endeavor.