Europe is struggling with its biggest energy crisis in decades, with natural gas supplies from Russia coming to a complete halt. Russia claims punitive economic sanctions imposed by the West to be responsible for this situation.
As we move into the winter months, analysts worry that the European energy sector will continue to struggle with price volatility. On the other hand, fears about shortages and gas rationing in the European Union have led to skyrocketing gas prices.
Given this backdrop, we think investors looking to invest in the energy sector should consider buying fundamentally sound stocks, Valero Energy Corporation (VLO), Marathon Oil Corporation (MRO), and APA Corporation (APA), but should steer clear of Tellurian Inc. (TELL).
Stocks to Buy:
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells transportation fuels and petrochemical products in the United States and internationally. The company operates through three segments: Refining; Renewable Diesel; and Ethanol.
VLO’s revenues increased 86.1% from the prior-year quarter to $51.64 billion in the fiscal quarter ended June 30, 2022. Operating income for the quarter came in at $6.22 billion, reflecting an increase of 1,121.8% year-over-year, while the net income stood at $4.77 billion, up 1,532.9% year-over-year. The company’s EPS was $11.58, reflecting an increase of 2,869.2% year-over-year.
The consensus EPS estimate of $7.55 for the fiscal quarter ending September 2022 represents a 518.6% improvement year-over-year. The consensus revenue estimate of $45.21 billion for the same quarter represents a 53.1% increase from the same period last year. It has an impressive earnings surprise history, as it topped Street EPS estimates in each of the trailing four quarters.
VLO’s shares have gained 69.4% over the past year to close the last trading session at $109.59. The stock has gained 21% over the past six months.
Its strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to 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.
VLO also has an A grade in Growth and Momentum and a B in Value and Quality. It is ranked #2 of 95 stocks in the B-rated Energy – Oil & Gas industry.
Beyond what is stated above, we’ve also rated VLO for Stability and Sentiment. Get all VLO ratings here.
Marathon Oil Corporation (MRO)
MRO operates as an independent exploration and production company in the United States and internationally. It explores, produces, and markets natural gas, natural gas liquids, crude oil, and liquefied natural gas and methanol.
MRO’s total revenues and other income came in at $2.30 billion for the second quarter ended June 30, 2022, up 101.5% year-over-year. Its income from operations increased 1,132.4% year-over-year to $1.29 billion. Moreover, the company’s net income and net income per share increased 5,937.5% and 6,750% year-over-year to $966 million and $1.37, respectively.
MRO’s revenue is expected to increase 51.2% year-over-year to $8.27 billion in the ongoing fiscal year. Its EPS is estimated to increase 213.1% year-over-year to $4.92 in the same period.
The stock has gained 133.3% over the past year to close the last trading session at $27.36.
MRO has an overall B rating, which equates to Buy in our proprietary rating system. It has an A grade in Momentum and Quality and a B for Growth. Within the same industry, the stock is ranked #35.
Click here to access MRO ratings for Stability, Sentiment, and Value.
APA Corporation (APA)
APA, through its subsidiaries, explores, develops, and produces oil and gas properties. It conducts business in the United States, Egypt, and the United Kingdom and engages in offshore exploration.
On August 23, APA announced an oil discovery offshore Suriname at Baja-1 in Block 53, which was drilled to a depth of 5,290 meters and encountered 34 meters of net oil pay in a single interval within the Campanian. “This result confirms our geologic model for the Campanian in the area and helps to de-risk other prospects in the southern portion of both Blocks 53 and 58,” said John J. Christmann, APA CEO, and president.
For the fiscal second quarter ended June 30, 2022, APA’s total revenues came in at $3.05 billion, up 71.3% year-over-year. Net income attributable to APA increased 193% year-over-year to $926 million. Moreover, its net income per share increased 230.5% year-over-year to $2.71.
Analysts expect APA’s revenue to increase 35.8% year-over-year to $10.77 billion in the ongoing fiscal year. Its EPS is estimated to increase 141.7% year-over-year to $9.43 in the same period. The company also beat the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 115.7% over the past year to close the last trading session at $41.74.
It is no surprise that APA has an overall B grade, equating to a Buy in our POWR Ratings system. The stock has an A grade for Momentum and Quality and a B for Growth and Value. It is ranked #8 in the same industry.
Click here to learn the additional POWR Ratings for Stability and Sentiment for APA.
Stock to Avoid:
Tellurian Inc. (TELL)
TELL, a natural gas company, is focused on producing liquefied natural gas (LNG) on the United States Gulf Coast and engages in building up infrastructure assets.
For the quarter that ended June 30, TELL’s net loss came in at $35 thousand. Its net cash used in operating activities increased 169.7% year-over-year to $83.50 million, while the net cash used in investing activities rose 2,251.7% from the prior-year period to $158.74 million.
Street expects TELL’s EPS for the ongoing fiscal year to come in at a negative $0.05.
The stock has gained marginally over the past month to close its last trading session at $4.15.
TELL’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. It also has an F grade for Value, Stability, and Quality. The stock is ranked last in the Energy – Oil & Gas industry.
Click here to see the additional POWR Ratings for TELL (Growth, Momentum, and Sentiment).
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VLO shares were trading at $105.16 per share on Thursday afternoon, down $4.43 (-4.04%). Year-to-date, VLO has gained 44.02%, versus a -17.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...
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