The energy market is facing a surge in volatility. With so much going around oil, fueled by the geopolitical crisis, excessive sensitivity of traders around the substance is evident. However, the wild swings could potentially normalize and even out over time.
Recently, an agreement for a small production cut of 100,000 barrels per day by the OPEC+ members pushed oil prices upward after top producer Saudi Arabia flagged output cuts last month to address oil price declines.
On top of it, citing the need for additional repairs, Russia’s state-owned Gazprom announced an indefinite halt to gas flows to Europe via the Nord Stream 1 gas pipeline. A halt to all Russian gas supplies puts the European Union in a tight spot as it heads into the fall and winter, which might raise prices.
Moreover, investor sentiments seem to favor the energy sector, as is evident from Energy Select Sector SPDR Fund’s (XLE) 44.1% year-to-date gains, significantly outpacing the SPDR S&P 500 ETF Trust’s (SPY) decline of 17.4% over the same period.
With Goldman Sachs Group Inc. (GS) expecting oil prices to rise to $125 a barrel in 2023, fundamentally sound energy stocks TotalEnergies SE (TTE), Valero Energy Corporation (VLO), and APA Corporation (APA) might be ideal investments now.
TotalEnergies SE (TTE)
TTE is an integrated oil and gas company operating worldwide. The company operates through the Integrated Gas, Renewables & Power; Exploration & Production; Refining & Chemicals; and Marketing & Services segments. It is headquartered in Courbevoie, France.
On August 31, it was reported that the Flemish government asked TTE for the installation and commercial operation of a charging service for electric vehicles in the West Flanders and Flemish Brabant regions. After winning public contracts to install and operate electric vehicle charging stations in the cities of Brussels, Antwerp, and Ghent, TTE’s position as a key player in electric mobility in Belgium should be strengthened.
On August 30, TTE announced a commercial agreement between its Northern Lights project and Yara to transport and store CO2 captured from Yara Sluiskil, an ammonia, and fertilizer plant in the Netherlands.
Patrick Pouyanné, Chairman and Chief Executive Officer of TTE, said, “TotalEnergies aims to develop a CO2 storage capacity of more than 10 million tons per year by 2030, both for its own facilities and for its customers, in line with its ambition to get to net zero by 2050, together with society.”
TTE’s adjusted revenues from sales came in at $70.46 billion for the second quarter of 2022 ended June 30, representing a 69.2% year-over-year growth. Its adjusted consolidated net income grew 178.4% from the prior-year quarter to $9.89 billion, while its cash flow from operations rose 115.7% from the same period last year to $16.28 billion. The company’s EPS increased 170% from the prior-year period to $2.16.
Analysts expect TTE’s revenue for the third quarter ending September 2022 to be $69.24 billion, indicating a 41.1% year-over-year growth. The company’s EPS for the same quarter is expected to increase 102.7% from the prior-year quarter to $3.57. Additionally, TTE has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
TTE has gained 14.4% over the past year and 1.9% intraday to close its last trading session at $50.84.
TTE’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TTE has an A grade for Momentum and a B for Sentiment. It is ranked #14 out of the 97 stocks in the B-rated Energy - Oil & Gas industry.
Beyond what we’ve stated above, we have also given TTE grades for Growth, Value, Stability, and Quality. Get all TTE ratings here.
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells transportation fuels and petrochemical products globally. The company operates through three segments: Refining; Renewable Diesel; and Ethanol.
In July, VLO declared a regular quarterly cash dividend on the common stock of $0.98 per share. The dividend was payable to shareholders on September 1. This reflects upon the cash generation ability of the company.
VLO’s revenue increased 86.1% year-over-year to $51.64 billion in the second quarter ended June 30. Its operating income grew 1,121.8% from the year-ago value to $6.22 billion, while adjusted net income attributable to VLO stockholders improved 1,672.7% year-over-year to $4.61 billion. The company’s adjusted earnings per common share rose 1,703.2% from its year-ago value to $11.36.
The consensus EPS estimate of $7.41 for the fiscal third quarter ending September 2022 indicates a 507.7% improvement year-over-year. The consensus revenue is expected to increase 53.1% from the same period last year to $45.19 billion. Additionally, VLO has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 75.9% over the past year and 51.5% year-to-date to close its last trading session at $113.82.
VLO's overall rating of A translates to Strong Buy in our proprietary POWR Ratings system. It also has an A in Growth and Momentum and a B in Value and Quality. Within the same industry, it is ranked #2. To see additional POWR Ratings for Stability and Sentiment for VLO, click here.
APA Corporation (APA)
APA explores, develops, and produces oil and gas properties. It has operations in the United States, Egypt, and the United Kingdom, as well as exploration activities in offshore Suriname.
On August 23, APA announced an oil discovery offshore Suriname at Baja-1 in Block 53 and provided an update on recent drilling operations at Dikkop-1 in Block 58. APA recently received regulatory approval regarding an amendment to the Block 53 Production Sharing Contract that provides options to extend the exploration period of the PSC by up to four years. The new discovery is expected to ramp up the production of the company.
In June, APA announced flow test results from the Krabdagu exploration well (KBD-1) on Block 58 offshore Suriname. John J. Christmann IV, APA’s CEO, and president, said, “The connected resource demonstrated from the flow tests at Krabdagu, combined with the results from Sapakara South, are a significant step forward in advancing a project in this area of Block 58.”
APA’s total revenue and other came in at $3.05 billion for the second quarter of 2022 ended June 30, representing a 71.3% year-over-year growth. Its adjusted EBITDAX rose 93.6% year-over-year to $1.96 billion, while adjusted earnings grew 204.9% from the prior-year quarter to $811 million. The company’s adjusted EPS increased 238.6% from the prior-year period to $2.37.
Street expects APA’s revenue for the quarter ended September 2022 to be $2.63 billion, indicating a 59.2% year-over-year growth. The company’s EPS for the same quarter is expected to increase 144.9% from the prior-year quarter to $2.40.
APA has gained 97.3% over the past year to close its last trading session at $38.80. The stock has gained 44.3% year-to-date.
It is no surprise that APA has an overall A rating, which translates to Strong Buy in our POWR Ratings system. It also has an A grade for Momentum and Quality and a B for Growth and Value. It is ranked #6 in the same industry.
In addition to the POWR Rating grades we’ve stated above, we have also given APA grades for Stability and Sentiment. Get all APA ratings here.
TTE shares were unchanged in after-hours trading Tuesday. Year-to-date, TTE has gained 4.65%, versus a -17.12% 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.
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