Investing in energy is a complicated task as a majority of these stocks are influenced by the underlying commodity prices. The commodity prices are manipulated by several supply and demand factors. Global oil prices have been on an upward swing over the second half of this year after a few devastating years. The price range has been very varied ranging between a high of more than $64 per barrel earlier this month compared to a low of $30 early last year.
Therefore, it is vital to choose the right stocks amid this ever-changing backdrop, considering capital spending, debt levels and production growth against free cash flow, costs and return of capital to stockholders through dividends and share buybacks.
Volatility Rose for Oil in 2017
The year 2017 has been full of ups and downs for the energy industry. Driven by improving fundamentals, oil priceis currently trading above $55 per barrel mark compared with 2014 levels of around $100.
However, oil prices hit almost a two and a half year high in the trading session this week with U.S. West Texas Intermediate (WTI) crude futures settled at $59.64.The partial recovery has been driven by improving fundamentals. Declining inventories and the extension of OPEC-led supply cuts are two major factors balancing the market and supporting the favorable uptrend.
Per the U.S. Energy Information Administration (EIA) data, global oil markets depicted less stability in 2016, while a slight supply deficit was witnessed in 2017. The data compilations show a shortfall of 180,000 barrels per day (bpd)in the first quarter of 2018.
In an effort to limit prices by the OPEC and Russians, U.S. oil yield has improved by more than 16% since mid-2016 and is reaching 10 million bpd. Per the Chinese customs data, U.S. shipments to China have been the largest beneficiary from the OPEC-led output cuts. However, Russia was China's largest crude oil supplier for the nine consecutive monthstill November, beating Saudi Arabia also for the rest of the year.
5 Stocks to Bet On
Strong fundamentals do not necessarily indicate that all energy companies are favorable picks. Moreover, with several companies crowding the investment space, it is not a simple task for investors to choose stocks that have the potential to deliver attractive returns.
Though these attributes do not guarantee outperformance, the Zacks Rank, which validates the company’s strong fundamentals, is considered handy. In particular, we have shortlisted 5 energy companies having a Zacks Rank of #1 (Strong Buy) or #2 (Buy) and companies having estimated EPS growth rate of 200% or more this year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
CVR Refining, LP CVRR, a #1 Ranked stock, is our first pick. Sugar Land, TX-based CVR Refining is an independent downstream energy partnership with refining and associated logistics properties in the Midcontinent United States.
Shares of CVR Refining returned more than 56% year to date. The company’s increasing cash and declining debt shows the strength of its balance sheet. It continues to be a good investment option indicated by projected EPS growth (F1/F0) of 1,350.0%. Notably, the company’s EV/EBITDA ratio 7.1 shows that it is undervalued compared with the industry’s 12.7.
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Statoil ASA STO, based in Norway, is a major international integrated oil and gas company. The Zacks #1 Ranked operator has operations in all major hydrocarbon-producing regions of the world, with an upstream focus on the Norwegian Continental Shelf (NCS). Owing to its strong offshore exposure, Statoil is a leader in subsea production.
Compared with the industry’s year-to-date return of 6.6%, Statoil’s investors were rewarded with more than a two-fold increase so far this year justifying stronginternational operations along with special emphasis on the NCS. Further, the company’s projected EPS growth (F1/F0) of 2,227.8% signals continuation of an uptrend in the price chart in the near term.
Headquartered in Dallas, TX, HollyFrontier Corp HFC isone of the largest independent refiners and marketers of petroleum products in the United States.A major advantage for the company is the high complexity index, or the capability to process a wide mix of crude, and access to some of the fastest growing domestic markets afforded by its portfolio of five refineries.
With a nearly 58% year-to-date rise in share price, HollyFrontier offers a good entrypoint into this Zacks Rank #1 company, which has a projected EPS growth (F1/F0) of 366.7%. The stock is witnessing solid activity on the earnings estimate revision front. Over the last 30 days, the estimates for the current quarter increased from 76 cents to 93 cents, a significant move.
CNOOC Ltd CEO is one of the three leading oil companies in China and one of the largest independent oil and gas exploration and production companies of the world. is the company is China’s dominant producer of offshore crude oil and natural gas and engages in the exploration, development, production and sale of crude oil, natural gas, and other petroleum products.
With more than 16% year-to-date rise in share price, CNOOC still offers a good entry point into this Zacks Rank #2 company, which has a projected EPS growth (F1/F0) of 4,678.6%. The company’s premium assets portfolio, excellent execution strategy, unique position as a pure oil player and potential transactions in the merger and acquisition space are other positives.
Headquartered in Edmonton, Canada, North American Energy Partners Inc. NOA through its subsidiaries, offers a range of mining and heavy construction services to customers in the resource development and industrial construction sectors mainly in Western Canada. The company provides construction and operations support services through various stages of an oil sands project's lifecycle.
Compared with the industry’s year-to-date decline of 26.6%, North American Energy Partners’ unit holders were rewarded 27.3% so far this year justifying its large and diverse fleet. Further, the company’s projected EPS growth (F1/F0) of 1,300% signals continuation of an uptrend in the price chart in the near term.
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