Despite various macroeconomic headwinds, the energy sector will likely continue to have a strong 2023, thanks to sustained energy demand and a tight supply. Given the industry’s tailwinds, it could be wise to invest in growing energy stocks Marathon Petroleum Corporation (MPC), PrimeEnergy Resources Corporation (PNRG), and Epsilon Energy Ltd. (EPSN).
However, given the financial weakness and bleak growth prospects, Camber Energy, Inc. (CEI) and NextDecade Corporation (NEXT) could be best avoided now.
Before delving deeper into the fundamentals of these stocks, let’s take a look at what’s happening in the energy sector.
The energy sector had an outstanding year, driven by high oil and natural gas prices in 2022. Strong demand and tight supplies exacerbated by Russia’s invasion of Ukraine fueled high energy prices last year. For 2023, supply-and-demand dynamics will likely continue to be the primary force driving growth across various segments of the energy sector.
Despite growing recessionary risks, demand for oil and gas is expected to grow this year as economies continue to recover from the pandemic. The Organization of the Petroleum Exporting Countries (OPEC) has raised its 2023 global oil demand growth forecast due to lifting COVID-19 restrictions in China and trimmed supply estimates for Russia and other non-OPEC producers, hinting at a tighter market.
As Western sanctions bite the nation, Russia will cut crude oil production by 500,000 barrels per day (bpd) starting this month until the end of June. The cut is equivalent to nearly 5% of Russian oil output.
According to OPEC’s most recent monthly report, global oil demand will increase this year by 2.32 million bpd, 100,000 bpd higher than last month’s forecast. Also, oil demand in China is expected to grow by 590,000 bpd, an increase of 510,000 bpd from last month’s forecast.
Furthermore, a Reuters poll showed that a tight supply could push oil prices above $90 in the second half of this year.
Investor’s interest in energy stocks is evident from the Vanguard Energy ETF’s (VDE) 10.1% returns over the past six months.
Let’s discuss the featured stocks in detail:
Stocks to Buy:
Marathon Petroleum Corporation (MPC)
MPC operates as an integrated downstream energy company through Refining & Marketing and Midstream segments.
On March 8, 2023, MPC announced the acquisition of a 49.9% interest in LF Bioenergy, an emerging producer of Renewable Natural Gas (RNG) in the United States, from Cresta Fund Management for $50 million. This acquisition will advance the company’s goal to lower the carbon intensity of its operations and product offerings.
In terms of forward non-GAAP P/E, MPC is trading at 6.22x, 21.9% lower than the industry average of 7.97x. Its forward EV/Sales multiple of 0.55 is 68.2% lower than the industry average of 1.72. In addition, the stock’s forward Price/Sales of 0.38x is 67.6% lower than the industry average of 1.18x.
For the fourth quarter that ended December 31, 2022, MPC’s total revenues and other income increased 12.6% year-over-year to $40.09 billion. Its adjusted EBITDA was $5.80 billion, up 107.6% year-over-year. Also, the company’s adjusted net income grew 291.9% year-over-year to $3.11 billion, while its adjusted EPS was $6.65, an increase of 411.5% from the prior-year quarter.
The company pays $3 annually as dividends, which translates to a yield of 2.41% at the current price. Its four-year average dividend yield is 4.09%. MPC’s dividend payouts have grown at a 10.4% CAGR over the past five years.
Analysts expect MPC’s EPS to increase 279% year-over-year to $5.49 in the first quarter (ending March 2023). Also, the company has an impressive earnings surprise history as it surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of MPC have gained 39.3% over the past six months and 53.2% over the past year to close the last trading session at $124.70.
MPC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MPC has an A grade for Momentum and Quality and a B for Growth and Sentiment. The stock topped among 90 stocks in the Energy – Oil & Gas industry.
Click here to see additional POWR Ratings for MPC for Value and Stability.
PrimeEnergy Resources Corporation (PNRG)
PNRG is an independent oil and gas company that engages in acquiring, developing, and producing oil and natural gas. The company acquires producing oil and gas properties through joint ventures with industry partners; and offers contract services to third parties, such as well-servicing support operations, site preparation, and construction services for oil and gas drilling and reworking operations.
In terms of trailing 12-month EV/Sales, PNRG is trading at 0.91x, 40.8% lower than the industry average of 1.54x. And its trailing 12-month EV/EBITDA multiple of 1.97 is 62.7% lower than the industry average of 1.97. Moreover, the stock’s trailing 12-month Price/Book of 1.24x is 17.9% lower than the industry average of 1.51x.
For the third quarter that ended September 30, 2022, PNRG’s revenues increased 129.1% year-over-year to $39.65 million. The company’s net income was $13.15 million, compared to a net loss of $1.16 million during the previous-year quarter. In addition, its EPS came in at $4.88, compared to a loss per share of $0.58 in the same quarter in 2021.
PNRG’s stock has gained 6.1% over the past six months and 17% over the past year to close the last trading session at $83.
PNRG’s POWR Ratings reflect this strong outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
PNRG has a B grade for Quality, Growth, and Sentiment. The stock is ranked #2 of 90 in the Energy – Oil & Gas industry.
In addition to the POWR Rating grades just highlighted, you can see the PNRG’s rating for Momentum, Value, and Stability here.
Epsilon Energy Ltd. (EPSN)
Natural gas and oil company EPSN engage in acquiring, developing, gathering, and producing oil and gas reserves in the United States. The company operates through Upstream and Gathering System segments. It has natural gas production in the Marcellus Shale in Pennsylvania; and oil, natural gas liquids, and natural gas production in the Anadarko Basin in Oklahoma.
EPSN’s trailing 12-month EV/Sales of 1.12x, 27.6% lower than the industry average of 1.54x. Its trailing 12-month EV/EBITDA multiple of 1.46 is 72.3% lower than the industry average of 5.28. In addition, the stock’s trailing 12-month EV/EBIT of 1.66x is 77.1% lower than the industry average of 7.28x.
EPSN’s total revenue increased 65% year-over-year to $69.96 million for the year that ended December 31, 2022. Its operating income grew 127.9% year-over-year to $46.97 million. The company’s adjusted EBITDA was $53.11 million, up 120.3% year-over-year. Also, its net income rose 204.1% from the year-ago value to $35.35 million.
Furthermore, the company’s net income per share was $1.51, an increase of 208.2% year-over-year.
EPSN’s annual dividend of $0.25 per share yields 4.65% at the current price. Its four-year average dividend yield is 0.65%.
The stock has gained 11.1% over the past five days to close the last trading session at $5.38.
EPSN’s strong prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
EPSN has an A grade for Quality and a B for Value and Sentiment. Out of 90 stocks in the same industry, it is ranked #3.
Beyond what is stated above, we’ve also rated EPSN for Growth, Momentum, and Stability. Get all EPSN ratings here.
Stocks to Sell:
Camber Energy, Inc. (CEI)
CEI operates as a diversified energy company. It owns minority and non-operated working interests in oil and gas wells in Texas. In addition, the company offers custom energy and power solutions to commercial and industrial clients in North America.
In terms of forward trailing 12-month EV/Sales, MPC is trading at 103.22x, 6,590.4% higher than the industry average of 1.54x. Likewise, the stock’s trailing-12-month Price/Sales multiple of 21.01 is 1,818.4% higher than the industry average of 1.09.
CEI’s operating expenses increased 34.9% year-over-year to 1.38 million in the third quarter that ended September 30, 2022. Its loss from operations widened 32.8% year-over-year to $1.22 million. In addition, net loss attributable to CEI and net loss per share came in at $23.28 million and $0.05, respectively.
In addition, as of September 30, 2022, the company’s cash stood at $2.46 million, compared to $5.85 million as of December 31, 2021.
Shares of CEI have declined 86.2% over the past six months and 97.1% over the past year to close the last trading session at $1.30.
CEI’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, translating to a Strong Sell in our proprietary rating system.
The stock has an F grade for Value and a D for Quality, Stability. Within the same industry, CEI is ranked last. To see additional POWR Ratings of CEI for Growth and Momentum, click here.
NextDecade Corporation (NEXT)
NEXT engages in development activities related to the liquefaction and sale of liquefied natural gas (LNG) and capturing and storing CO2 emissions. Currently, the company is focusing on the development activities on the Rio Grande LNG terminal facility location in the Port of Brownsville in southern Texas; and a carbon capture and storage project at the terminal.
In terms of forward Price/Book, NEXT is currently trading at 0.41x, 71.3% higher than the industry average of 1.42x.
For the third quarter that ended September 30, 2022, NEXT’s operating loss worsened by 399.7% year-over-year to $16.09 million. Net loss attributable to common shareholders widened 517.2% from the year-ago value to $25.05 million. Also, the company’s net loss per common share worsened by 533.3% year-over-year to $0.19.
Analysts expect NEXT’s loss per share for the first quarter (ending March 2023) to widen 117.9% year-over-year to $0.31. The company is expected to report a loss per share of $0.65 for the current fiscal year (ending December 2023). Moreover, NEXT missed its consensus EPS estimates in three of the trailing four quarters, which is disappointing.
Furthermore, the company’s loss per share for fiscal 2024 is expected to widen by 138% from the previous year to $1.56. Over the past month, the stock has plunged 41.5% and 30.4% over the past six months to close the last trading day at $4.13.
NEXT’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
NEXT has an F grade for Value and a D for Growth, Quality, and Sentiment. In the Energy - Oil & Gas industry, it is ranked #89 of 90 stocks.
Click here to access the additional POWR Ratings for NEXT (Momentum and Stability).
What To Do Next?
Get your hands on this special report:
What gives these stocks the right stuff to become big winners, even in this brutal stock market?
First, because they are all low priced companies with the most upside potential in today’s volatile markets.
But even more important is that they are all top Buy rated stocks according to our coveted POWR Ratings system, and they excel in key areas of growth, sentiment and momentum.
Click below now to see these 3 exciting stocks that could double or more in the year ahead.
MPC shares were trading at $127.30 per share on Monday morning, up $2.60 (+2.09%). Year-to-date, MPC has gained 10.02%, versus a 4.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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