Saudi Arabia, the de-facto OPEC+ leader, negated rumors of an impending oil output increase. Moreover, the current two million barrels per day (BPD) output cut is expected to continue until the end of 2023. This should keep the oil supply tight.

On top of it, the European Union is gearing up for its embargo on Russian crude oil next month, and the G7 countries are set to put a price cap on Russian oil purchases. Against this backdrop, traders have recently increased their bets on oil, reaching $200 per barrel.

However, certain uncertainties loom over the energy market. Goldman Sachs Group Inc. (GS) has slashed its oil price forecast by $10 to $100 per barrel due to China’s lockdowns potentially dampening oil demand.

On the other hand, investor sentiments seem to favor the energy sector. The Energy Select Sector SPDR Fund (XLE) has gained 62.9% year-to-date, while the broader S&P 500 index has lost 17.1%.

Given this backdrop, it could be wise to invest in energy stocks that have crushed the market this year: Marathon Petroleum Corporation (MPC) and Valero Energy Corporation (VLO).

Marathon Petroleum Corporation (MPC)

MPC is an integrated downstream energy company that operates through its Refining & Marketing and Midstream segments. The company refines crude oil and other feedstock and transports, stores, and markets crude oil and refined products.

On November 1, MPC’s board of directors declared a dividend of $0.75 per share on the common stock, reflecting an increase of approximately 30% over its previous dividend, underscoring the company’s cash generation ability. The dividend is payable to shareholders on December 12, 2022.

In September, MPC announced closing its joint venture with Neste for the Martinez renewables project. “We expect the partnership to improve the overall economics of the project through the improved procurement of advantaged feedstock,” said President and Chief Executive Officer Michael J. Hennigan. 

For the fiscal third quarter ended September 30, MPC’s total revenues and other income increased 44.8% year-over-year to $47.24 billion. Adjusted net income attributable to MPC rose 731.3% from the prior-year quarter to $3.86 billion. Adjusted income per share improved 969.9% year-over-year to $7.81.

The consensus EPS estimate of $6.10 for the quarter ending December 2022 indicates a 369.2% year-over-year increase. Likewise, the consensus revenue estimate for the same quarter of $38.69 billion reflects a rise of 8.7% from the prior-year period. MPC has topped consensus EPS estimates in all four trailing quarters, which is impressive.

The stock has gained 99.6% over the past year and 88% year-to-date to close its last trading session at $120.31. It has gained 8% over the past month. MPC is trading higher than its 50-day moving average of $108.22 and 200-day moving average of $94.18, indicating an uptrend.

MPC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

MPC has a Momentum and Quality grade of A and a Growth and Value grade of B. In the 94-stock Energy – Oil & Gas industry, MPC is ranked #1. The industry is rated B. Click here to see the additional POWR Ratings for MPC (Stability and Sentiment).

Valero Energy Corporation (VLO)

VLO manufactures, markets, and sells petrochemical products and transportation fuels. The company operates through its three broad segments – Refining, Renewable Diesel, and Ethanol.

On October 26, VLO announced a regular quarterly dividend on the common stock of $0.98 per share, payable to shareholders on December 8. This reflects upon the shareholder return ability of the company.

On September 26, VLO announced that it had reduced its debt by approximately $1.25 billion through its previously announced tender offers for various senior notes. The company also declared a collective debt reduction of approximately $3.60 billion through transactions in the second half of 2021 and the first half of 2022.

For the fiscal third quarter ended September 30, VLO’s revenues increased 50.6% year-over-year to $44.45 billion. Adjusted net income attributable to VLO stockholders rose 413% from the prior-year quarter to $2.80 billion. Adjusted earnings per common share improved 436.8% year-over-year to $7.14.

Street EPS estimate of $7.02 for the quarter ending December 2022 indicates a 184.2% year-over-year improvement. Likewise, Street revenue estimate for the same quarter of $43.89 billion reflects an improvement of 22.3% from the prior-year period. In addition, VLO has topped consensus EPS estimates in each of the trailing four quarters.

The stock has gained 96.8% over the past year and 81% year-to-date to close its last trading session at $135.96. It is up 6.4% over the past month. It is trading higher than its 50-day moving average of $119.98 and 200-day moving average of $111.52.

It’s no surprise that VLO has an overall A rating, which translates to Strong Buy in our POWR Rating system. It also has an A grade for Momentum and a B for Growth, Value, and Quality. It is ranked #4 in the Energy – Oil & Gas industry.

In addition to the POWR Rating grades we’ve stated above, one can see VLO ratings for Stability and Sentiment here.

MPC shares were trading at $124.47 per share on Tuesday morning, up $4.16 (+3.46%). Year-to-date, MPC has gained 99.58%, versus a -15.46% 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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