According to a senior U.S. Treasury official, oil prices could jump to $140 per barrel if a price cap is not imposed on Russian crude oil. And for the price cap to be efficient, widespread buy-in would be needed, and Russia might retaliate by cutting off exports and creating a price spike.

Moreover, the global oil supply is expected to struggle to meet the rising demand for fuel, according to the International Energy Agency (IEA). “Low global oil inventories coupled with continued high demand for gasoline, diesel, and other petroleum products means that increased production likely won’t have much impact on prices in the short term,” said EIA Administrator Joe DeCarolis.

Given this backdrop, fundamentally strong energy stocks Adams Resources & Energy, Inc. (AE), TotalEnergies SE (TTE), and Devon Energy Corporation (DVN) might be solid buys now.

On the other hand, for the first time in nearly two months, crude oil prices fell below the $100 per barrel mark last week. Investors are concerned about a possible recession that might rein in oil demand. Hence, we think the fundamentally weak energy stock Tellurian Inc. (TELL) might be avoided now.

Stocks to Buy:

Adams Resources & Energy, Inc. (AE)

AE sells, transports, and engages in the terminaling and storing of various crude oil and natural gas basins. The company operates through its three broad segments: Crude Oil Marketing, Transportation and Storage; Tank truck Transportation of Liquid Chemicals, Pressurized Gases, Asphalt, and Dry Bulk; and Pipeline Transportation, Terminaling, and Storage of Crude Oil.

In May, AE declared a quarterly dividend for the first quarter of 2022 of $0.24 per common share, which was payable to shareholders on June 17. This reflects upon the company’s cash generation ability.

AE’s revenue increased 137.9% year-over-year to $774.25 million in the first quarter ended March 31. Its operating earnings grew 111.6% from the year-ago value to $8.15 million, while its net earnings improved 116.9% year-over-year to $6.09 million. The company’s net earnings per common share increased 110.6% from its year-ago value to $1.39.

The consensus EPS estimate of $3.46 for the fiscal year ending December 2022 indicates a 25.8% improvement year-over-year. The consensus revenue is expected to be $3.12 billion for the same period.

The stock has gained 12.8% over the past year and 13.8% year-to-date to close its last trading session at $31.65.

AE’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

AE is rated an A in Value and Momentum and a B in Sentiment and Quality. Within the B-rated Energy – Oil & Gas industry, it is ranked #1 out of 97 stocks. To see additional POWR Ratings for Growth and Stability for AE, click here.

TotalEnergies SE (TTE)

TTE is an integrated oil and gas company operating worldwide. The company, headquartered in Courbevoie, France, operates through the Integrated Gas, Renewables & Power; Exploration & Production; Refining & Chemicals; and Marketing & Services segments.

In June, it was reported that TTE had entered into an agreement with Adani Enterprises Limited (AEL) to acquire a 25% interest in Adani New Industries Limited (ANIL). ANIL is expected to become an exclusive platform for the two companies to produce and commercialize green hydrogen.

In the same month, it was reported that TTE had been given a 25% interest in a new joint venture with QatarEnergy for the North Field East (NFE) liquified natural gas project. This might benefit the company.

TTE’s adjusted net income came in at $8.98 billion for the first quarter of 2022, representing a 198.9% year-over-year growth. Its adjusted EBITDA grew 113.3% from the prior-year quarter to $17.42 billion, while its cash flow from operations rose 36.1% from the same period last year to $7.62 billion. The adjusted EPS increased 209.1% from the prior-year period to $3.40.

Analysts expect TTE’s revenue for the quarter that ended June 2022 to be $59.98 billion, indicating a 44.1% year-over-year growth. The company’s EPS for the same quarter is expected to increase 172.1% from the prior-year quarter to $3.46. Additionally, TTE has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.

TTE has gained 11.5% over the past year to close its last trading session at $49.45.

It is no surprise that TTE has an overall A rating, which translates to Strong Buy in our POWR Ratings system. TTE has an A grade for Momentum and a B for Growth and Sentiment. It is ranked #2 in the Energy – Oil & Gas industry.

Beyond what we’ve stated above, we have also given TTE grades for Value, Stability, and Quality. Get all the TTE ratings here.

Devon Energy Corporation (DVN)

DVN primarily engages in the exploration, development, and production of oil, natural gas, and natural gas liquids as an independent energy company. The company operates multiple gross wells.

On June 8, DVN announced that it had entered into a definitive purchase agreement to acquire the leasehold interest and related assets of Rimrock Oil and Gas, a Warburg Pincus portfolio company, in the Williston Basin. “This bolt-on acquisition is highly complementary to our existing position in the Williston Basin and is immediately accretive to our financially-driven strategy,” said Rick Muncrief, President, and CEO of DVN.

In May, DVN declared a fixed-plus-variable dividend of $1.27 per share based on the company’s first-quarter financial performance, which was payable to shareholders on June 30. The company also announced an expansion of its share-repurchase authorization to $2 billion. This reflects upon the company’s shareholder return ability.  

For the first quarter of 2022, DVN’s total revenues increased 86% year-over-year to $3.81 billion. Net earnings and net earnings per share came in at $995 million and $1.48, up 360.6% and 362.5% from the prior-year period.

Street EPS estimate for the fiscal second quarter (ended June 2022) of $2.32 reflects a rise of 286% year-over-year. Likewise, Street revenue estimate for the same quarter of $4.43 billion indicates an improvement of 83.4% from the prior-year period. Additionally, DVN has topped consensus EPS estimates in each of the trailing four quarters.

Over the past year, DVN’s stock has gained 86.1% and 21% year-to-date to close its last trading session at $53.32.

DVN has an A grade for Momentum and a B grade for Growth and Quality. It is ranked #43 in the same industry. Click here to see the additional POWR Ratings for DVN (Value, Stability, and Sentiment).

Stock to Avoid:

Tellurian Inc. (TELL)

TELL operates natural gas production, liquefied natural gas marketing, and infrastructure assets, engaging in the global natural gas business. The company owns interests in the natural gas assets and producing wells in the Haynesville Shale trend of northern Louisiana.

In June, TELL announced its execution of definitive agreements to sell a $500 million principal amount of senior secured convertible notes. The notes are expected to bear a 6.0% per annum interest and convertible into shares of TELL.

For the quarter that ended March 31, TELL’s loss from operations rose 118.8% from the year-ago value to $42.90 million. The company’s net loss increased 146.8% year-over-year to $66.61 million, while its net loss per common share rose 75% from the prior-year period to $0.14.

Analysts expect EPS for the fiscal second quarter (ended June 2022) to come in at a negative $0.04.

Over the past year, TELL’s stock has declined 31.8% to close its last trading session at $3.00. It has declined 27% over the past month.

TELL’s bleak prospects are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our POWR Rating system.

TELL has an F grade for Value, Stability, and Quality and a D for Sentiment. It is ranked last in the Energy – Oil & Gas industry. Click here to see the additional POWR Ratings for TELL (Growth and Momentum).

AE shares were trading at $31.10 per share on Tuesday afternoon, down $0.55 (-1.74%). Year-to-date, AE has gained 13.37%, versus a -18.60% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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