Yahoo Finance Buy These 3 Stocks for the Next Energy Bull Run
Energy stocks are still historically underrepresented as a percentage of the S&P500. Even after last year’s tremendous rally in the energy sector, it still makes up only 4% of the index, whereas its 10-year median holding is 7% of the index.
Additionally, there are structural tailwinds that are likely to keep the price of oil elevated, possibly for years to come. Underinvestment in energy infrastructure over the last decade means that new oil supply is unlikely to come to market any time soon. Most large-scale oil infrastructure projects take 3-5 years before yielding significant production.
Furthermore, policy initiatives prioritizing alternative energy investments are likely to further lower the incentives to build new oil production facilities. Higher interest rates, increasing the cost of capital don’t help either.
All these variables together are likely to keep a bid underneath the price of oil, and while that is bad news for consumers, it’s great news for energy investors.
Here, I will share three oil and gas stocks with high Zacks Ranks, indicating upward trending earnings revisions and increasing the likelihood of near-term stock strength.
Image Source: Zacks Investment Research
Murphy USA
Murphy USA MUSA is a leading independent retailer of motor fuel and convenience merchandise in the United States. Murphy USA markets refined products through a chain of retail stations, almost all of which are located near a Walmart supercenter, primarily in the Southeast, Southwest and Midwest United States. As of Dec 31, 2022, the company had more than 1,700 retail fuel stations encompassing 27 states.
The company, which caters to approximately 1.6 million customers daily, also owns a dedicated line space on the Colonial Pipeline - the largest refined products system in the country and the biggest gasoline mover.
MUSA has been an incredibly strong stock over the last five years, considerably outperforming the industry and broad market.
Image Source: Zacks Investment Research
MUSA boasts a Zacks Rank #1 (Strong Buy), with analysts unanimously upgrading earnings estimates across the board. Q1 earnings have been revised 9% higher over the last two months, and FY23 earnings 4.4% higher.
Image Source: Zacks Investment Research
Murphy USA has made it a point to return significant cash to shareholders as well. In addition to reducing the share count by 52% through share buy backs since 2014, it also introduced a dividend in 2020. Since its establishment the dividend payment has grown from $0.25 per share to $1.35 per share today.
Image Source: Zacks Investment Research
Murphy USA is trading at a one-year forward earnings multiple of 14.2x, which is below the market average of 19.5x, and below its five-year median of 16x.
Image Source: Zacks Investment Research
Crescent Point Energy
Crescent Point Energy CPG is engaged in the acquisition, exploration and development of oil and natural gas properties in Western Canada. The Company's operations consist of light and medium oil and natural gas assets strategically focused in core areas in southern Saskatchewan and central and southern Alberta.
Crescent Point energy has had a challenging five-year stock performance, returning a paltry -6.8%, underperforming the sector and broad market. However, with earnings revisions trending significantly higher, a compelling technical chart pattern, and reasonable valuation CPG could be ready to rally.
CPG currently has a Zacks Rank #1 (Strong Buy), with current quarter earnings being upgraded by 13%, and FY24 earnings being revised 25% higher over the last two months. Additionally, next quarter earnings are expected to show a 12% YoY increase.
Image Source: Zacks Investment Research
Crescent Point Energy stock has built out a massive bullish technical chart pattern. After trading sideways for the last four years, CPG has broken out of a base, and built out a bull flag. If the price can break out above the $7.50 level, CPG may trade much higher. Alternatively, below $5.75 and the chart pattern is invalidated.
Image Source: TradingView
CPG is trading at a one-year forward earnings multiple of 5.6x, which is below the industry average of 8.4x, and in line with its five-year median. Additionally, CPG pays a 4.3% dividend, that has been increased by an average of 10% annually over the last five years.
Image Source: Zacks Investment Research
NuStar Energy
NuStar Energy NS is a master limited partnership (MLP) that engages in the transportation and storage of crude oil as well as refined products in the U.S., the Netherlands Antilles, Canada, Mexico, and the U.K. The partnership went public in 2001 and is the second-largest independent liquids terminal operator in the nation. As of year-end 2018, NuStar’s asset base included approximately 9,800 miles of pipelines and 75 terminal and crude oil storage tank facilities. The partnership's combined system has approximately 88 million barrels of storage capacity.
NS has had a lackluster performance over the last five years, up just 10% over that time. But with shifting fundamentals, and macroeconomic tailwinds, the stock should be finding buyers soon.
Image Source: Zacks Investment Research
While Q1 earnings estimates have been revised lower, future earnings expectations are very strong. Q2 earnings are expected to show a 25% YoY increase, and FY23 earnings are expected to climb 12% YoY. Additionally, FY23 earnings have been revised 14.4% higher over the last two months.
Image Source: Zacks Investment Research
NuStar Energy is trading at a one-year forward earnings multiple of 19.3x which is above the industry average of 10.5x, and above its five-year median of 15x. While NS has had a shaky performance and is trading at a relatively premium valuation it does attract investors with dividends. The company yields a hefty dividend of 9.6%.
Image Source: Zacks Investment Research
Bottom Line
While the energy industry has bumped into some near-term weakness in 2023, prospects further out are very promising. With minimal new supply coming online, and the economy nearing the business cycle trough, an eventual pick up in economic activity will further boost fuel prices. When this happens, the whole sector will benefit with better profit margins and higher sales growth.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
NuStar Energy L.P. (NS) : Free Stock Analysis Report
Murphy USA Inc. (MUSA) : Free Stock Analysis Report
Crescent Point Energy Corporation (CPG) : Free Stock Analysis Report
