The OPEC+ agreed to a small output increase of 100,000 barrels per day, defying the United States’ hopes of a bigger boost in oil supply.

OPEC expects oil demand to rise by 2.7 million barrels per day or 2.7% in 2023. This outlook is based upon the expectations of healthy global economic growth and improvements in the containment situation in China. And the supply forecast suggests that markets could remain tight, which could keep oil prices elevated.

Moreover, bullish investor sentiments around the energy sector are evident from Energy Select Sector SPDR Fund’s (XLE) 38.1% year-to-date gains, significantly outpacing the SPDR S&P 500 ETF Trust’s (SPY) decline of 14.1% over the same period.

Given this backdrop, fundamentally strong energy stocks Diamondback Energy, Inc. (FANG), Marathon Oil Corporation (MRO), ConocoPhillips (COP), Adams Resources & Energy, Inc. (AE), and APA Corporation (APA) might be ideal investments now.

Diamondback Energy, Inc. (FANG)

FANG is an independent oil and natural gas company that acquires, develops, and explores unconventional and onshore oil and natural gas reserves in the Permian Basin in West Texas.

In June, FANG announced an enhancement in its capital return program. Beginning from the third quarter of this year, the company intends to increase its return of capital commitment to at least 75% of Free Cash Flow. Additionally, it intends to increase its base dividend to $3.00 per common share annually, beginning with the second quarter of 2022. This reflects on the company’s shareholder return ability.

In May, FANG and Rattler Midstream LP (RTLR) announced that they had entered into a definitive agreement for FANG to acquire all of the publicly held common units representing the limited partner interests in RTLR not already owned by the company and its subsidiaries. This is expected to benefit the companies from the scale of the combined firm.

FANG’s total revenue increased 64.7% year-over-year to $2.77 billion in the second quarter ended June 30. Its income from operations grew 107.1% from the year-ago value to $1.98 billion, while its net income attributable to FANG improved 355.3% year-over-year to $1.42 billion over the period. The company’s earnings per common share increased 366.5% from its year-ago value to $7.93.

The consensus EPS estimate of $6.56 for the fiscal third quarter (ending September 2022) indicates a 123.1% improvement year-over-year. The consensus revenue estimate of $2.45 billion for the same quarter reflects a 28.3% increase from the same period last year. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.

The stock has gained 66.2% over the past year and 18.3% year-to-date to close its last trading session at $127.54.

FANG’s POWR Ratings reflect this promising outlook. The stock has an A grade for Momentum and a B for Quality. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock is ranked #42 of 97 stocks in the B-rated Energy – Oil & Gas industry. Click here to see the additional POWR Ratings for FANG (Growth, Value, Stability, and Sentiment).

Marathon Oil Corporation (MRO)

MRO is an independent exploration and production company operating internationally. The company explores, produces, and sells crude oil and condensate, natural gas liquids, and natural gas. It also produces liquefied natural gas and methanol.

On July 27, MRO’s board of directors declared a dividend of eight cents per share on its common stock. The dividend is payable to stockholders on September 12. This reflects upon the company’s ability in shareholder returns.

MRO’s total revenues and other income came in at $1.75 billion for the first quarter ended March 31, representing a 63.7% year-over-year growth. Its income from operations grew 588% from the prior-year quarter to $805 million, while its adjusted net income rose 351.2% from the same period last year to $749 million. Adjusted net income per share increased 385.7% from the prior-year period to $1.02.

Analysts expect MRO’s revenue for the third quarter ending September 2022 to be $2.18 billion, indicating a 50.2%% year-over-year growth. The company’s EPS for the same quarter is expected to increase 234.1% from the prior-year quarter to $1.30. Additionally, MRO has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.

MRO has gained 111.3% over the past year and 45.4% year-to-date to close its last trading session at $23.88.

It is no surprise that MRO has an overall B rating, which translates to Buy in our POWR Ratings system. The stock has an A grade for Momentum and Quality. It is ranked #28 in the Energy – Oil & Gas industry.

Beyond what we’ve stated above, we have also given MRO grades for Growth, Value, Stability, and Sentiment. Get all MRO ratings here.

ConocoPhillips (COP)

COP explores, produces, transports, and markets crude oil, bitumen, natural gas, LNG, and natural gas liquids worldwide. The company primarily engages in conventional and tight oil reservoirs, shale gas, heavy oil, LNG, oil sands, and other production operations.

On July 14, COP announced an investment in a new large-scale LNG facility in Jefferson County, Texas, under development by Sempra (SRE) subsidiary Sempra Infrastructure. This is expected to expand the company’s LNG business.

For the first quarter of 2022, COP’s total revenues and other income increased 82.7% year-over-year to $19.29 billion. Adjusted earnings and adjusted earnings per share came in at $4.29 billion and $3.27, up 375.5% and 373.9% from the prior-year period.

Street EPS estimate for the fiscal third quarter (ending September 2022) of $3.93 reflects a rise of 121.9% year-over-year. Likewise, Street revenue estimate for the same quarter of $20.32 billion indicates an improvement of 74.9% from the prior-year period. Additionally, COP has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.

Over the past year, COP’s stock has gained 71% to close its last trading session at $94.71. It has gained 31.2% year-to-date.

This promising prospect is reflected in COP’s POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system. COP has an A grade for Momentum and a B grade for Sentiment and Quality. It is ranked #27 in the same industry.

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

Adams Resources & Energy, Inc. (AE)

AE is primarily engaged in crude oil marketing, transportation, terminalling, and storage in 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 25.4% over the past year and 20.1% year-to-date to close its last trading session at $33.40.

The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. AE is rated an A in Value and Momentum and a B in Sentiment and Quality.

AE is ranked #3 in the Energy – Oil & Gas industry. Click here to see additional POWR Ratings for Growth and Stability for AE.

APA Corporation (APA)

APA Corporation, through its subsidiaries, explores for, develops, and produces oil and gas properties. It has operations in the United States, Egypt, and the United Kingdom, as well as exploration activities in offshore Suriname.

In June, APA announced flow test results from the Krabdagu exploration well (KBD-1) on Block 58 offshore Suriname. John J. Christmann IV, APA’s CEO, and president, said, “The connected resource demonstrated from the flow tests at Krabdagu combined with the results from Sapakara South, are a significant step forward in advancing a project in this area of Block 58.”

APA’s total revenue came in at $2.67 billion for the first quarter of 2022, ending March 31, representing a 42.7% year-over-year growth. Its adjusted EBITDAX rose 50.1% year-over-year to $1.70 billion, while net cash provided by operating activities grew 32.8% from the prior-year quarter to $891 million. The company’s adjusted EPS increased 111% from the prior-year period to $1.92.

Analysts expect APA’s revenue for the quarter ending September 2022 to be $2.72 billion, indicating a 64.5% year-over-year growth. The company’s EPS for the same quarter is expected to increase 156.7% from the prior-year quarter to $2.52.

APA has gained 96.6% over the past year to close its last trading session at $35.93. The stock has gained 33.6% year-to-date.

It is no surprise that APA has an overall B rating, which translates to Buy in our POWR Rating system. The stock has an A grade for Momentum and Quality and a B for Value. It is ranked #17 in the same industry.

Beyond what we’ve stated above, we have also given APA grades for Growth, Stability, and Sentiment. Get all APA ratings here.

FANG shares were trading at $121.93 per share on Wednesday afternoon, down $5.61 (-4.40%). Year-to-date, FANG has gained 16.29%, versus a -11.83% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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