Unrelenting geopolitical turmoil and economic concerns have made the energy markets volatile this year. Lately, oil prices have come under pressure due to interest rate hikes by central banks, the strengthening of the dollar, and China’s strict lockdowns.
However, oil prices are anticipated to rise with the implementation of the European Union’s price cap on Russian crude. Moreover, a harsh cold winter could also increase energy bills. Additionally, the reopening of the Chinese economy after easing COVID restrictions might lead oil prices to break $100 per barrel in 2023.
The Energy Select Sector SPDR Fund (XLE) has gained 52% year-to-date, while the broader S&P 500 index has lost 19.2%. This substantiates the robust investor interest in the energy sector.
Given this backdrop, fundamentally strong energy stocks Marathon Petroleum Corporation (MPC), Valero Energy Corporation (VLO), and Adams Resources & Energy, Inc. (AE) could be solid buys now.
Marathon Petroleum Corporation (MPC)
MPC operates as an integrated downstream energy company through two segments: Refining & Marketing and Midstream.
In December, MPC declared that six of its refineries, along with its San Antonio office building, had received 2022 ENERGY STAR efficiency certifications from the U.S. Environmental Protection Agency (EPA). The EPA recognition might benefit the company.
In November, MPC declared a dividend of $0.75 per share on the common stock, reflecting an increase of approximately 30% over its previous dividend. The dividend was payable to shareholders on December 12. This reflects the shareholder return ability of the company.
MPC’s total revenues and other income rose 44.8% year-over-year for the fiscal third quarter that ended September 30, 2022, to $47.24 billion. The company’s adjusted net income increased 731.3% year-over-year to $3.86 billion, while its adjusted EPS grew 969.9% from the prior-year quarter to $7.81. Also, its adjusted EBITDA came in at $6.83 billion, up 182.9% year-over-year.
For the fiscal fourth quarter (ending December 31, 2022), analysts expect MPC’s revenue and EPS to increase 9% and 352.7% year-over-year to $38.80 billion and $5.88, respectively. In addition, it surpassed the EPS estimates in each of the trailing four quarters.
MPC’s shares have gained 75.7% over the past year and 25.7% over the past six months to close the last trading session at $109.75.
MPC’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and Quality and a B for Growth. In the 92-stock B-rated Energy – Oil & Gas industry, MPC is ranked #8.
To see additional POWR Ratings for Value, Stability, and Sentiment for MPC, click here.
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells transportation fuels and petrochemical products. 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, which was payable to shareholders on December 8. This reflects upon the solid cash generation ability of the company.
In September, VLO announced that it had reduced its debt by approximately $1.25 billion through its previously announced tender offers for various series of senior notes. The company also declared a collective debt reduction of about $3.60 billion through transactions in the second half of 2021 and the first half of 2022.
In the fiscal third quarter ended September 30, VLO’s revenues increased 50.6% year-over-year to $44.45 billion. Its operating income grew 447.2% year-over-year to $3.79 billion.
Furthermore, adjusted net income attributable to VLO stockholders and adjusted earnings per common share came in at $2.80 billion and $7.14, registering increases of 413% and 436.8% from the prior-year period, respectively.
Analysts expect VLO’s revenue for the fiscal fourth quarter (ending December 2022) to come in at $41.84 billion, representing an increase of 16.5% year-over-year. The consensus EPS estimate of $6.57 for the ongoing quarter indicates a 166% year-over-year increase.
Moreover, VLO has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 58.9% year-to-date and 73.8% over the past year to close the last trading session at $119.37.
It’s no surprise that VLO has an overall B rating, equating to Buy in our POWR Ratings system.
VLO has an A grade for Momentum and a B for Growth, Value, and Quality. VLO is ranked #9 in the same industry.
Beyond what is stated above, we have also given VLO grades for Sentiment and Stability. Get access to all VLO ratings here.
Adams Resources & Energy, Inc. (AE)
AE markets, transports, and stores various U.S. crude oil and natural gas basins. The company has three operational segments: Crude Oil Marketing, Transportation, and Storage; Tank truck Transportation of Liquid Chemicals, Pressurized Gasses, Asphalt, and Dry Bulk; and Pipeline Transportation, Terminalling, and Storage of Crude Oil.
On November 10, AE declared a quarterly cash dividend for the third quarter of 2022 of $0.24 per common share, which was payable on December 16. The company has consistently paid a dividend since 1994. This reflects the shareholder return ability of the company.
On November 1, AE announced the repurchase of all of the shares of Adams common stock owned by KSA Industries, Inc. The total purchase price was approximately $70 million or $36 per share and is expected to be funded by a combination of existing cash on hand and a new term loan.
Along with the company’s recent acquisitions, repurchasing of shares is expected to enhance the value for all remaining shareholders. Kevin Roycraft, Chief Executive Officer of the company, said, “The company will also see an immediate annual savings of roughly $1.9 million in dividend payments at the current dividend rate.”
For the fiscal third quarter ended September 30, AE’s total revenues increased 50.1% year-over-year to $852.90 million. Its operating earnings grew 30.1% from the prior-year quarter to $2.99 million, while its net earnings grew 41.7% from its year-ago value to $2.19 million. The company’s net earnings per common share improved 38.9% from its year-ago value of $0.50.
The consensus EPS estimate of $3.37 for the fiscal year ending December 2022 represents a 22.6% improvement year-over-year. The consensus revenue estimate came in at $3.46 billion.
The stock has gained 48.2% year-to-date and 44.1% over the past three months to close the last trading session at $41.20.
AE’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock also has an A grade for Momentum and Sentiment and a B for Value and Quality. Within the same industry, it is ranked #3.
Click here to see additional POWR Ratings for AE (Stability and Growth).
MPC shares were trading at $112.36 per share on Monday morning, up $2.61 (+2.38%). Year-to-date, MPC has gained 80.16%, versus a -18.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
3 Energy Stocks That Are Big Buys Right Now StockNews.com
